Obama's Dilemma: How to Increase Jobs, Not the Deficit

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As the brainstorm in Washington continues, analysts say it's easier to craft legislation to stimulate spending than it is to create jobs. "While Uncle Sam can try and stimulate spending on autos and housing and even mortgage credit via the myriad of policy measures that have been undertaken, the return to job creation is as elusive as ever," says David Rosenberg, chief economist and strategist for Gluskin Sheff & Associates (GS.TO), a Toronto wealth-management firm. Rosenberg says that if the consensus is correct that the economic recovery is underway, the corresponding job-loss data point to "the mother of all jobless recoveries."

If U.S. policymakers were willing to take a longer view of job growth, they might find promising answers overseas. In Germany, for instance, the government takes a more direct role in the job market, which analysts say is one reason that country's unemployment rate remains steady as U.S. joblessness soars. It's well known that Germany, along with other European countries, has more generous unemployment benefits that act as automatic stabilizers when jobs are cut. The government has also instituted what is known as a "Kurzarbeit," or "short work" program, which provides subsidies to workers whose hours have been cut, which makes work and a steady income available to more people. Analysts say the program has prevented hundreds of thousands of job losses in 2009 alone. Germany—along with Austria, Denmark, and Switzerland—also has well-established apprenticeship programs for young workers.

underemployed and discouraged workers

As the October jobs report revealed, the U.S. job market is facing some intractable problems. More than one-third of all of the people out of work—about 5.6 million out of 15.7 million—qualified as "long-term unemployed:" out of work for 27 weeks or more. That's the highest rate for long-term unemployment since statistics were first published in 1948. The average duration of unemployment now is 26.9 weeks, also the highest on record.

Meanwhile, the number of involuntary part-time workers—those working part-time who would prefer to work full-time— has more than doubled since December 2007, to nearly 9.3 million. The expansion of those ranks leaves little incentive for employers to make new hires because they can meet whatever needs they have by simply increasing the hours worked of existing staff. A broader measure of joblessness that includes the unemployed, those working involuntary part-time, and discouraged workers has now reached 17.5%.

Rising unemployment has fed into debates on whether and how the U.S. can rebuild its manufacturing sector, and what roles technology, education, and health care will play in the future. "We need real direction on where [U.S] industrial policy is going, not just subsidies in this and that," says Maurice Emsellem, policy director at the National Employment Law Project, an advocacy group for low-wage and unemployed workers. "That requires a lot of work and leadership and it's not happening in the U.S.A."

Herbst is a reporter for BusinessWeek.