Our goal in this series is to offer job creation ideas that can fit squarely within the fiscal bounds of the political climate today in Washington. Some of our ideas will require additional federal spending, but all of our proposals are well within the financial means of the federal government. Others don’t cost anything. All would create jobs.
And jobs are sorely needed. The U.S. economy has gained more than 1.3 million jobs since the labor market hit bottom in September 2010. Yet, we still have almost 7 million jobs fewer than when the recession started in December 2007. In 2009, we laid out a set of initiatives that would generate strong job creation. But after taking aggressive action in 2009 to end the Great Recession and start the economy growing anew, policymakers in Washington today are unwilling to embrace major job creation initiatives.
This week, Center for American Progress Vice President for Economic Policy Michael Ettlinger and Economic Policy Analyst Jordan Eizenga present an idea to create jobs by rewarding businesses that hire new employees.
Job creation isn’t going to get moving to the extent we need until there’s sufficient demand in the economy to get businesses believing that there will be good returns to investing and hiring. In short, they need customers. That said, at the margin there is something to be said for providing other forms of motivation to hire.
One way to do that is to create a “National Payroll Contest” that offers prizes to the firms that generate the greatest increases in payroll over the course of the year. It’s an admittedly quirky idea. But hear us out. It would be inexpensive, and if it worked it would help create jobs.
The idea is to motivate companies to hire and give raises without offering subsidies for every person on their payroll, which is both expensive and inefficient as most of the jobs subsidized would be jobs that would have existed anyway. Instead, there would be a competition that would motivate many firms to hire and give raises. But only the most expansive firms would receive a benefit from the government.
Winning companies would be selected based on the amount of increase in the wages they pay that are subject to the payroll tax over the year. There would be separate prizes for different categories of companies based on size. Because wage income subject to the payroll tax is only the first $106,800 per employee, the prize would not go to firms that simply increased their top executive salaries the most but to those that either increased the pay of their rank-and-file workers or boosted the number of employees. For a winning company, the prize would be equivalent to 5 percent of their total payroll subject to payroll tax. In order to give employers more chances to win, and more motivation to get in the game, there would be second and third prizes as well.
The clear benefit of this proposal is that it is relatively inexpensive for the federal government. While it would motivate many firms to go the extra mile in increasing payroll in an effort to win the prize, it would only cost the public coffers the amount of the prize for the winning firms. And that cost could end up being offset by the increased revenue from the increase in hiring.
Of course, for the contest to work as intended, Congress will need to create rules to ensure that companies win the contest fair and square. Rules must be designed to prevent businesses from winning simply by acquiring other companies and claiming the payroll of the combined firms. But such rules need not be complicated.
The most obvious challenge to this idea (aside from being quirky) is the absence of good information for potential participants. A company that is hiring already and might be motivated to hire a bit more to have a chance at the prize is going to be reluctant to do so if it has no idea how it’s faring against its competition. For that reason, developing a system of public reporting from the government that maintained the confidentiality of firms would greatly increase participation.
Clearly, a National Payroll Contest will not alone provide nearly enough jobs to get us back to pre-recession employment levels. This is by no means its purpose. But it can be part of a larger set of policies that try to achieve that end, and Congress should give the contest serious consideration. We need to get people back to work, and to do so perhaps a little friendly competition would not be such a bad thing. This seems like a contest worth having.
Michael Ettlinger is Vice President for Economic Policy and Jordan Eizenga is an Economic Policy Analyst at American Progress.