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Against salary freezes

Andrew Samwick is distressed by President Obama's decision to freeze salaries for political appointees:

If you freeze salaries, then only the people who don't deserve a raise get the raise they deserve. Everyone else gets less, and the discrepancy is widest for the most productive people. Who decided this was an effective personnel policy? Why is it that when institutions are strapped for cash, they pay less attention to how they allocate their resources? When cash is scarce, we should spend our money more intelligently. What is intelligent about a compensation policy that fails to differentiate based on performance? Reduce staff. Set the baseline raise at a negative number. Do something, but don't force those who merit additional compensation to subsidize those who don't.

By Ezra Klein  |  August 4, 2010; 4:11 PM ET
 
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Comments

Andrew Samwick is oblivious to our current circumstances. He is advocating an economic rule of the survival of the fittest at a time economically when the survival of the whole species is threatened economically. Our whole economy needs coordinated sacrifice by everyone to save the whole group. Divided and elbowing out our co-workers guarrantees that we fall at a time we need to support and hold each other up.

Here is the way out of this economic mess by sharing and enlarging the employment pie:

Proposal to Immediately Reduce Unemployment in the U.S.

For all employers with payrolls of more than 15 people, who have laid off employees, who, in turn, have collected unemployment benefits, require those employers to rehire those employees based on the following terms: (1) Hire back at least 1 past laid off employee for every 15 currently working. (2) Rehire using a rule that the longest unemployed worker who has a home mortgage obligation is hired back first (e.g. on basis that employees who have incurred the most personal economic injury are hired back first). (3) The government will then fully credit to the employer the expense of this rehire (including health care) against the employer’s total payroll FICA tax obligation (approximately 1/15 total payroll). Note: This FICA credit loss to the government can be offset by crediting back to the social security system the amount of unemployment benefits the rehired employees would have otherwise collected, e.g. the overall amount unemployment benefit expense to the government is reduced by implementing this rehiring plan.

In this manner national unemployment could be reduced immediately to the 5% range or better. The mortgage foreclosure crisis could essentially be broken and cured. The resulting improvement in consumer demand from the rehired employees’ increased spending would generally make those rehired employees more needed and useful on the job to their employers as those employers experience generally improved sales. And the cost of lost FICA collections by the government would be more than offset by the lift in general revenues. The downward national debt spiral would be arrested as general revenues immediately rise.

As the economy stabilizes the FICA credit to employers could then be phased out gradually over time.

Clearly a FICA tax credit for mandatory employer rehiring is the key which will unlock and open the door to returned prosperity at essentially no economic cost and no increase in national debt, equivalent to Alexander's slashing the Gordian Knot.

All that is required is that our leaders have the imagination, creativity, and fearlessness to stop fearing and to put the country back to work.

Posted by: 51STEPS | August 4, 2010 4:54 PM | Report abuse

Ezra,

Andrew Samwick said, "What is intelligent about a compensation policy that fails to differentiate based on performance?" That is a good question for you to do a future post on. Or would that offend your labor union loving friends?

Posted by: cummije5 | August 4, 2010 5:20 PM | Report abuse

Here is a way to save some money. The civil service is filled with people who have gotten promotions and pay raises by becoming supervisors but later stopped holding supervisory positions for whatever reason. However they still retain their supervisory level pay and rank. Why? Move them back to a pay level and rank commensurate with their non-supervisory status.

Posted by: pwkennedy | August 4, 2010 5:24 PM | Report abuse

51Steps,

Your plan requires an awful lot of faith in the efficiency of government (and for that matter even private business). It's a far more complicated effort assigned to the same government that couldn't create an effective mortgage modification program.

http://www.nytimes.com/2010/07/22/business/22tarp.html

Posted by: justin84 | August 4, 2010 6:06 PM | Report abuse

agree with cummije5,

and under those circumstances i'm guessing he's against tenure for teachers, right?

Posted by: visionbrkr | August 4, 2010 6:06 PM | Report abuse

Obama freezes salaries, right-wingers say "Obama is punishing success!"

Obama doesn't freeze salaries and right-wingers say "Obama is rewarding his cronies at the expense of the American people!"

Posted by: lol-lol | August 4, 2010 6:22 PM | Report abuse

dear justin84,

Thankyou for your caution about my proposal. I am motivated from the same frustration you have, that government and the private sector aren't capable of hitting the broad side of a barn, let alone hitting the nail on the head to save our economy. And humbly, to me I see this very simple way for government and business to take their blindfolds off with my FICA credit proposal and start making lenonade out of our current lemon economy before it's too late.

frustrated 51steps

Posted by: 51STEPS | August 4, 2010 8:11 PM | Report abuse

What a fool. Okay, just drop everyone 5%, then give raises.

Posted by: staticvars | August 4, 2010 8:38 PM | Report abuse

I wonder what Andrew and Ezra's take on teachers pay is? Should the system be changed to a merit based pay rather than the current system where everyone is treated exactly the same based on how long they have been a teacher?

Posted by: daveo2324 | August 5, 2010 12:53 PM | Report abuse

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