The most cost effective way to increase output is to temporarily lower the variable (labor) cost of output. That's what Obama's New Jobs Tax Credit does. It is similar to the 1977-78 NJTC that was quite successful at speeding the economy's recovery from the 1974/5 recession. Despite poor implementation it generated at least a million extra jobs. The 11.1% increase in private employment during the NJTC was larger than for any other 24 month period in the last 50 years. When the economy is going into a recession a marginal employment subsidy stimulates new firm formation. A NJTC will encourage entrepreneurs to try a risky aggressive expansion at a time when skilled workers are available and some of their established competitors are weakened by commitments to flawed business models. • If the credit is 12 % of the 2009 wage bill above a threshold of 95% of the firm’s 2008 social security wages, the first round stimulus to GDP is about $78 billion and the revenue cost of only $45 billion (using Hammermesh's (1976) estimates of output constant SR wage elasticity of labor demand of -.15). • The research on the NJTC was published in the May 1979 AER and in Studies in Labor Economics, Sherwin Rosen ed 1981. For more detail see: • http://digitalcommons.ilr.cornell.edu/articles/184/