A proposal: employment-linked tax incentives

One important unknown about the fiscal stimulus plan is how much bang for the buck it will provide.  Call it the Keynesian multiplier or whatever else you want, the issue is the magnitude of employment and real GDP a given fiscal spending can generate.  Much of the discussion about the stimulus plan focuses on the amount of stimulus needed, the composition of the spending boost, and the extent to which you need tax reductions to complement the spending boost.

My main worry about the efficacy of the fiscal stimulus--aside from the international spillovers in case it is not supported by equally ambitious fiscal plans elsewhere--is this: households that face considerable employment uncertainty, and hence about their to future income prospects, are unlikely to go on a big spending spree. Just as banks are hoarding cash, households will try to preserve wealth by increasing saving at the margin.  This reduces the marginal propensity to consume, and renders the fiscal boost rather ineffective.

Why not try to deal with the looming unemployment problem, and the huge sense of risk and uncertainty it creates, more directly?  What I have in mind is subsidizing employment directly by providing employers incentives to keep people on the job.  We could imagine for example a scheme whereby firms received tax incentives on a sliding scale in relation to the size of their payroll. If you reduce your payroll, you get nothing. If you keep it unchanged, you get tax benefits. If you increase it, you get even more tax benefits. 

This would allow firms to dismiss employees who are not performing and would not interfere greatly with the normal churning of the workforce. Firms could still lay off workers, but they would now have an incentive to hire enough new workers to make up for the reduction in their payroll.

The idea is to target employment more directly and to deal head-on with the most severe consequence of a recession: job loss or the fear thereof.  We have had a lot of thought on how to increase confidence in the financial system.  We also need to think some of about the loss of confidence on the part of ordinary workers. 

So call this a worker confidence enhancement plan.

Comments

[Account Deleted]

Hie primum ipsum visitabo hic. Ita multi inveni in vasa interesting maxime Weblog eius discussionem. Tons de tuis commentationes articles, suspicor non sum solus omnem habens fructum praesens est! sustine bonos vsus.
Regards,
Ports Automation

[apotekonline dk]

Jeg tror, ​​at dette arbejde forbundne skatteincitamentet er god. For mig er det et forsøg værd.

[Account Deleted]

Raf
raf

Thanks for news ...

[Account Deleted]

I hate spammers! :) And here are mine 5 cents propecia and kamagra :)

[Account Deleted]

I like this idea, but those who live in the city, says there is a lot of big backlog of basic maintenance can be funded immediately, and would require very little in terms of direct political debate.

איפור מקצועי

[Account Deleted]

I have wanted to learn more about particular topics, but not many websites would help me out in informing me the way I expected. This left me with many question, but after reading your article, I got an answer to all my questions. You are too cool dude!!!

Regards,
Generic Drugs Exporter

[Account Deleted]

I wonder how you got so good. This is really a fascinating blog, lots of stuff that I can get into. One thing I just want to say is that your Blog is so perfect!
http://www.buymedicinesonline.us/anticonvulsant_medicines-11.htm

[Account Deleted]

Thank you for sharing to us Please one more post about that..
http://www.onlinemedicalstore.net/

[Account Deleted]

hey buddy,this is one of the best posts that I’ve ever seen; you may include some more ideas in the same theme. I’m still waiting for some interesting thoughts from your side in your next post.
http://www.onlinemedicalstore.net/allergy-spiriva-tiotropium-c-1_28 “> Spiriva

[Account Deleted]

Once again, I appreciate all your work and also providing a lot vital tricks for your readers.
http://www.solutionssolver.blogspot.com/

[Account Deleted]

This is not my house-it is a property or a product just to sell just like any other consumer goods displayed on the shelf of a marketplace....

Real Estate Services

[Account Deleted]

This is done so as not to distract your home buyer that’s why no need for your personal and family artifacts for them to see.

Real Estate Services

[Account Deleted]

Many places and centers offer business and trade promotions to both buyers and supplier.What about the differences in skill intensities across industries? The job losses in the relatively unskilled-labor intensive battery industry should have little effect on the relatively skilled-labor intensive machinery
sexshop
sexyshop
sexshop online
alongador peniano

[Amam587]

TextMate CodeIgniter Bundle v0.1 .... Appropriate now it's in early Alpha, but it is surprisingly great. http://www.publiccourtrecord.net/rssa.xml

[Account Deleted]

your site really clear.. very good articles here..

thanks dani..
http://bestpregnancyblogs.com

[Tinnitustreat]

Folks obviously get frustrated when it begins to impact them locally. I are going to be back soon and follow up having a response. Ringing in Ears Treatment

[Account Deleted]

data recovery software
It helped me so much. Thank you so much!

[Account Deleted]

data recovery software

Thanks for nice and informative article!

[Account Deleted]

data recovery

Thanks for the information you post......

[fuzedrink]

Good post Rodrik..

http://newyorklifeannuities.net/

[Kinsell Emma]

thank you for sharing.
Ultrabook Parts|AU AC Adapters|Global AC Adapter|Ersatz Laptop Akkus