Unintended Consequences

The Senate on Wednesday passed a $15 billion jobs bill that offers a tax break to companies that hire people who have been unemployed for at least 60 days. This should help create some jobs. But it will probably also have unintended consequences. Unfortunately, the legislation actually encourages companies to fire existing employees and hire unemployed people to capture the tax credit. This problem will particularly afflict unskilled laborers who require little training and are easily replaced, but have managed to avoid the chopping block despite the current downturn. The tax credit may even trigger layoffs: companies often delay layoffs as long as possible because the costs of rebuilding a workforce once demand picks up in the future are substantial at many firms. By making hiring so much more attractive, this bill likewise makes firing much easier for firms. The Senate ought to have just lowered payroll taxes for all Americans, but by a lesser amount.