Longer Weekends and Higher Wages? 5 Surprising Ways That Would Help Improve the Economy
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Of course, part of the problem with the economy right now is that the workers who do have jobs aren't making enough money to keep spending, so any policy that saw those workers taking wage cuts could be problematic for recovery as well as for the people themselves. Therefore this idea works best for workers who already make a solidly middle-class salary; people barely making ends meet as it is would be little helped by additional cuts to their salaries. The policy worked in Germany and the Netherlands because salaries there tend to be higher.
Price pointed out that in addition to fewer hours, more generous leave policies would actually create demand for jobs. “In practice, federal policy incentivizing employers to offer more paid vacations, family and parental leave and paid sick days, in addition to getting the US closer to international norms regarding these vital labor standards, would likely lead to additional hiring at the current relatively low level of demand.”
And Baker argued:
“There seems to be no way to avoid the fact that we are destined to have a prolonged period in which the economy is operating below its potential output. It makes much more sense to turn this into leisure that can be enjoyed by everyone, rather than unemployment that is suffered by an unlucky minority of the work force.”
2. Write down mortgages, fix housing crisis, create one million jobs?
A new report by the group New Bottom Line argues that fixing the mortgage crisis by getting banks to reduce the principal on home loans would actually create 1 million jobs.
The housing bubble so overinflated the cost of houses that a whopping one in five homeowners in the US owe more on their mortgage than their home is actually worth in the current market. New Bottom Line points out that the same big banks that created the housing bubble, artificially inflating the value of housing by repackaging mortgages into "securities" and selling them at a profit, are the ones that can fix the problem. But, of course, they're unlikely to do so without someone forcing their hands.
So the groups affiliated with New Bottom Line are calling on state attorneys general to call for restitution to homeowners in their settlement with the banks over foreclosure fraud. If the lender writes down the loan, they reduce the amount of the principal from what the borrower originally signed up to borrow to the actual market value of the house right now. The report estimates that this process would save homeowners $71 billion per year.
According to their blog:
“Six billion dollars per month that is currently going to mortgage payments would instead go toward buying groceries, school supplies, and other household necessities. As consumer demand picked up, businesses would start hiring again. The report estimates that putting $71 billion into American consumers’ pockets annually would help create more than one million jobs per year.”
What about the cost? Well, according to New Bottom Line, “Last year, the nation’s top six banks paid out more than twice the cost of the plan ($71 billion per year) in bonuses and compensation alone ($146 billion in 2010). Currently, the nation’s banks are sitting on a historically high level of cash reserves of $1.64 trillion.”
The New York Times editorial page also supports writing down the principal on home loans.
“Reducing principal is a better solution than lowering interest rates, because it reduces payments and restores equity. Bankers resist, because it could force them to recognize losses they would prefer to delay. The administration has resisted, in part because principal reductions are seen as rewarding reckless borrowers.”