More on underemployed – and the knowledge tax credit

Yesterday’s New York Times ran a story on the growing number of underemployed – More Companies Cutting Labor Costs, but Not the Labor:

A growing number of employers, hoping to avoid or limit layoffs, are introducing four-day workweeks, unpaid vacations and voluntary or enforced furloughs, along with wage freezes, pension cuts and flexible work schedules. These employers are still cutting labor costs, but hanging onto the labor.

As I’ve noted many times before, this may be a good business strategy but it creates a new economic policy challenge. A part of our demand stimulus — specifically unemployment insurance — is based on people who have lost their jobs, and therefore lost their purchasing power. That type of stimulus will not help restore the purchasing power (and therefore aggregate demand) of people who have wage or hour cuts. Some of the infrastructure stimulus will address the hours issue — but not the lower wages. We need specific policies to deal with the underemployment problem.
As I have argued before, one of the policies would be a knowledge tax credit. Take those slack hours and put people into training programs. That will help replace lost income (and purchasing power) and make the companies and the country stronger in the long run.

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