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In the midst of an unprecedented challenging jobs situation and in honor of Labor Day, let’s all come together to discuss new ways to fix our persistent unemployment problem and boost our stagnating economy.

As a small business owner, whose business is to help put people back to work, I’d like to propose a new kind of unemployment benefit that can get people working sooner and help businesses create more jobs.

Government’s Pain

The U.S. economy has lost 7.7 million jobs during this recession. Our government has thus far paid out $671 billion of the total $787 billion stimulus package in the American Recovery and Reinvestment Act of 2009, attempting to trigger economic growth and job creation.

A big part of the stimulus spending, specifically $65 billion to The Department of Labor, has been devoted to updating the skills of workers to meet the needs of today’s businesses.

On top of the $787 billion ARRA spending, the federal government is spending $134 billion this year in unemployment benefits payments, helping million of jobless workers maintain a living.

Even with two unemployment benefits extensions and coverage of up to 99 weeks, hundreds of thousands of the unemployed will soon reach the end of the rope. It’s a ticking time bomb for the social safety net.

Faced with its own fiscal stress, our government’s big spending so far has yet to pay off in either fostering economic recovery or creating jobs. It’s time for something new.

The Pain of the Unemployed

Mei Lu

Workers that were laid off from their jobs in shrinking industries are eager to update their skills. Their only current option is applying for a job retraining grant to attend programs at technical schools, community colleges or for-profit colleges.

In many cases, these training programs and degrees do little to increase their students’ value in the job market. There is often a gap between the true business needs and these programs. In addition, real-world experience is more valuable to employers than classroom experience.

The worst part is that many people go into debt, even after government subsidies, to afford these programs. When they finish these programs and often still find themselves struggling to land a job, not only have they not improved their job prospects, they are in a much worse financial situation.

The Pain of the Businesses 

Businesses are extremely cautious about hiring right now, given the uncertainty of the economy. Based on studies by organizations like Small Business Administration and Kauffman Foundation, young businesses create most new jobs in any economy. But, currently most young businesses are cash-strapped, hindering their ability to create jobs.

Today, early-stage small businesses have little access to the capital they need for growth. Loans are particularly difficult to get for companies in the startup stage. These companies often have much work that needs to be done before making money, but have no money to hire people.

The Solution: Turn Unemployment Benefit into Practical Training Stipend

There is a way to for our government to retrain workers AND invest in businesses without needing any new spending. I’m proposing that our government take current unemployment benefit money and change it to a stipend for practical training.

Businesses, particular small to medium-sized businesses, would be given a yearly “practical training” headcount quota. This quota could be calculated based on the company’s revenue. The lower the revenue, the bigger the headcount. Businesses would be given headcount quota, not money, by the government.

Unemployed workers would receive this “practical training” stipend, instead of their current unemployment benefits, directly from the government. In order to receive it, people would need to apply to and get accepted to practical training work opportunities offered by businesses.

This way, businesses can get human resource investment in exchange for giving jobless workers on-the-job training. Businesses need to woo the unemployed to work for them and, therefore, will create practical training opportunities that will give these workers desirable experiences and help them build marketable skills.

With this form of “human resource” investment, businesses can grow without needing as much capital. This leads to business growth and job creation.

As with the current unemployment benefit, the practical training stipend would be significantly lower than income from their regular jobs. These workers would be motivated to soak up skills and build real world experience. They would want to make themselves marketable and move on into a permanent job as quickly as possible.

This proposed solution is to turn the current spending on unemployment into a new form of investment in businesses. The business community, in turn, would contribute to updating the skills of the unemployed workforce.

Jobless workers would still receive financial support from our government while gaining real-world practical experience. This new kind of cooperation among the government, businesses and the workforce is much more likely to stimulate a quick economic recovery.

Let’s start this kind of win-win-win thinking and work together toward our common prosperity.

To summarize, here is a comparison of the current unemployment benefits system vs. the proposed “practical training stipend.”

Call to Action

I’m not an economist or a public policy maker. This solution may very well be far from perfect. Its purpose is to serve as a starting point for a new conversation and a plan to put our economy on the right track. I hope you will share your thoughts, poke holes at this or propose a different solution.

Mei Lu is CEO of Jobfully, a Redmond Internet startup that helps candidates find jobs. You can follow her blog here.

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