Unintended consequences: Worries about the Senate jobs bill

The Bill
The Senate just passed the jobs bill as a bipartisan effort. Way to go. They’ve proved that members of Congress can actuall work on something together and come up with a workable solution. It contains some $20bn in additional funds for highway employment, and $15bn in tax breaks for employers who take on new hires (they’ve lifted the payroll tax through 2010 and are offerring a $1,000 federal tax credit to all such employees who stay in work for a year). Way to go. I’m a big fan of efficient market-based solutions to social problems.

It’s not a huge amount of money, but might tip the scales in favour of hiring someone new.

Except.
Except that the jobs have a specified target for new hires: Those who have been out of work for 60 days or more. Now, I’ve been there, and it’s a rough road to get hired when you haven’t been working, but this doesn’t quite fit right, and here’s why.

The potential consequences aren’t well thought out
The best candidate no longer neccessarily gets the job. The tax breaks only apply to new hires, and those who have been out of work for over 60 days. This gives the employer an incentive to go after one employee over another equally qualified employee who’s either in work or recently unemployed.

There’s no incentive to keep people working. In fact, this is almost an incentive for churn, especially for low-skilled or easily replacable labour and early-stage professionals. If you had a whole lot of non-union, hourly employees who were machinists or mechanics or factory workers, it’d be awfully easy to let them go and start claiming 6.2% for the next 9 months on their replacements. Sure, firing is illegal, but if you just cut hours most of the time people will leave. Churn is costly in terms of lost productivity, but I wouldn’t put it past a number of restructuring “experts” who are incentivised over the short term to replace workers. There are loads of ways to let them go.

It’s heavily tilted to large businesses. The businesses who can comprehend and benefit from a small tax break like this tend to be larger businesses, but it’s smaller businesses that provide most of US employment, and who often take the lead in hiring on recession exits.

I hate to be a cynic
But I’m continually concerned by the way we enact laws. I hope this works out, but I’m very afraid it won’t.

Better strategies
More programmes to increase the rate of risk financing to new businesses. The Entrepreneur visa programme. Encouragement of growth capital (and, particularly, liquidity in that growth capital) for existing/successful businesses. Business advice programmes that work.

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