The Economist : The West’s economies have embarked on wrong contractionary policies -The main culprit of the Joblessness is a collective, premature shift to fiscal austerity by Western governments. Obama’s jobs agenda should be big enough to counter the fiscal tightening.

.
The Economist
Unemployment in the West
The quest for jobs
It is not impossible for politicians to reduce the West’s frighteningly high unemployment levels
September 10, 2011
from the print edition


Unemployment in the West - The quest for jobs


Some excerpts :

Go for growth

The immediate priority should be supporting demand—or at least not doing harm to it. The left is right on one thing: the main cause of the current high joblessness is the severity of the last recession and the weakness of the subsequent recovery. Yet the West’s economies have embarked on contractionary policies. In some cases the fault lies with monetary policy: the European Central Bank should reverse its recent rate rises. But the main culprit is a collective, premature shift to fiscal austerity by governments.

As this newspaper has repeatedly argued, politicians need to strike a bargain with the bond markets: combine policies that cushion growth now with measures that will bring deficits under control in the medium term. Raise the retirement age, for instance, and that leaves more room to stimulate growth in the short term. A minimal test of Mr Obama’s jobs agenda will be whether it is big enough to counter the fiscal tightening, equivalent to 2% of GDP, that is slated for next year.

Where should the short-term money go? Some forms of stimulus are better than others at supporting employment. Germany’s subsidies for shortened working hours helped dissuade firms from firing workers; Mr Obama’s subsidies for green technology fattened the bottom line of a few chosen firms but did very little to spur jobs. Governments should prioritise policies that do. Some infrastructure spending, such as building roads and repairing schools, falls into that category. So do tax incentives that cut the cost of hiring, particularly for extra new workers—which is why it makes sense for America to extend, and even expand, its payroll-tax cut. And so, in America’s case, does federal aid to the states, since the main way states cut their budgets is by firing workers.

Easing the road ahead

So there are ways in which government money can help. But it is also plain that the jobs mess is not just about demand: it cannot be solved with more stimulus alone. There is plenty of evidence—from declining employment rates for less-skilled men to rising disability rolls—to suggest that Western economies had a brewing jobs problem long before the financial crisis hit. The combination of new technology and globalisation has reduced the demand for the less skilled, and many workers, particularly men, have failed to respond to these deep changes in the labour market. The shift in demand for skills has a long way to go, as our special report on the future of work explains. It suggests an important part of any jobs agenda must involve changes in education, more training to equip people in the rich world for tomorrow’s jobs and getting government off entrepreneurs’ backs.

....