Roubini Says U.S. Payroll Tax Cut Would Spur Jobs

The U.S. government should use a temporary reduction in payroll taxes to boost employment, New York University Professor Nouriel Roubini said.

“Firms are sitting on cash, but they are perceiving labor costs as being too high,” Roubini, 52, said in a Bloomberg Television interview today. “We have to reduce labor costs by reducing payroll taxes on a temporary basis for employers.”

In a Sept. 17 Washington Post op-ed piece, Roubini outlined his proposal for the Obama administration to cut the payroll tax for two years. Reduced labor costs would spur employers to hire and would give employees more take-home pay, which would lead to increased household spending, Roubini wrote.

Initial jobless claims increased by 12,000 to 465,000 in the week ended Sept. 18, Labor Department figures showed today in Washington. The total number of people receiving unemployment insurance declined, while those getting extended payments rose.

“There is a bit of a chicken-egg problem,” Roubini said. Firms aren’t hiring because they perceive a lack of consumer demand, Roubini said. If they don’t add new jobs, there is no labor income and, in turn, less spending, he said.

A political stalemate ahead of November’s congressional election means there isn’t any momentum for a payroll tax cut, Roubini said.

Many of the U.S. jobs lost in the recession are “gone forever,” Roubini said. Some jobs have gone overseas, while other companies have learned to produce more goods and services with fewer workers, he said.

To contact the reporters on this story: Carol Massar in New York at cmassar@bloomberg.net; Alex Kowalski in Washington at akowalski13@bloomberg.net.

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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