But what can be done?

On Sept. 12, U.S. President Barack Obama addressed the nation for the third time in less than a week to promote the American Jobs Act, his latest attempt to deal with the country’s crippling unemployment situation. He held a press conference at the White House and again implored Congress to “pass this bill,” turning the phrase into a mantra. As if politicians needed more evidence of the severity of the problem, a few minutes after Obama began speaking, Bank of America announced plans to slash 30,000 jobs.

That’s a small number compared to the nation’s 14 million unemployed, but a worrying sign nonetheless, especially now that employment growth has effectively stalled. No net jobs were added in August, and the country’s unemployment rate appears stuck above 9%. Add in Americans who have simply given up on the job search, and those with part-time work looking for full-time, and the country’s true unemployment picture is closer to 16%. The situation is in danger of becoming chronic: roughly 45% of the country’s jobless have been on the hunt for more than six months.

Compared to the U.S., Canada’s job market looks positively rosy. The unemployment rate is lower at 7.3%, and it’s tempting to feel secure in the country’s growth prospects. That’s a dangerous attitude, however. Prime Minister Stephen Harper acknowledged as much in a September address to his national caucus, stating his intention to “help create jobs now and for years to come” when Parliament resumes in the fall, and that government needs to remain “flexible” when managing the economy. The emphasis on job creation is surprising, given the Harper administration’s single-minded focus on deficit reduction, but a change in strategy could be in order. Gross domestic product shrank 0.4% in the second quarter, and another contraction is possible in the next, according to Scotiabank economists Derek Holt and Karen Cordes Woods. That would place Canada in a technical recession. “This wasn’t supposed to happen,” they wrote in a recent note. “Yet, we’re faced with the distinct possibility that the Canadian economy could be the first to stumble.” Of course, if and how badly the economy stumbles depends largely on forces beyond our borders, particularly in the U.S. That’s why we should hope the American Jobs Act has at least some effect. The bill, a combination of tax cuts and infrastructure spending totalling US$447 billion, is long overdue. “It’s devastating that Washington took their eyes off of jobs,” says Heidi Shierholz, an economist with the Economic Policy Institute in Washington, “but this is a huge step in the right direction.”

Among the economists most optimistic for its prospects is Ian Shepherdson, chief U.S. economist at High Frequency Economics in New York. He calculates that if the bill passes, it will boost GDP by 3% and create four million jobs. “Obama’s not going to get the whole bill,” he concedes, “but it’s reasonable to think he gets two-thirds.” That means 2% GDP growth, and approximately two million jobs. “It’s not enough, but it’s not nothing,” he says.

Others have trouble seeing how even that can be achieved. “There are some interesting ideas in the jobs plan, but a lot of them are going to hit with a very loud thud,” says Tom Porcelli, U.S. market economist with RBC Capital Markets in New York. For instance, one measure in the bill would reduce the payroll tax paid by employees to 3.1% from 4.2%. (It was already lowered from 6.2% this year.) The hope is the tax cut will leave Americans with more cash to spend, creating demand for additional goods and services, and by extension, jobs. But people could easily save the money or use it to pay off debt, a likely prospect given consumers are still deleveraging. The cut is also smaller than the previous payroll tax reduction, and there is still debate among economists about that policy’s success.

A cut to the payroll tax paid by employers (3.1% from 6.2%) to encourage hiring is similarly weak. Companies are not reluctant to hire because of cost—data show large corporations are sitting on cash—but because of reduced demand for products and services. This is reflected in surveys conducted by the National Small Business Association in the U.S. In the latest poll from July, small businesses cited economic uncertainty and a decline in customer spending as the most significant challenges to growth. “If a consumer is not walking through the door to buy your goods, you’re not hiring.” Porcelli says.

The bill’s $140 billion in spending falls short of what’s needed, say both Shepherdson and Shierholz. It’s tempting to assume that because the 2009’s nearly $800 billion American Recovery and Reinvestment act failed to lift the U.S. out of its malaise, another round of spending will be just as ineffective. Indeed, David Rosenberg, chief economist at Gluskin Sheff & Associates, called the bill a “laundry list of the same old solutions that didn’t work the first time.”

The Congressional Budget Office, however, doesn’t agree. It estimates between 1.2 million and 3.3 million Americans owed their jobs to that Act in the first quarter of this year, and that it lowered unemployment by as much as 1.8%. If that seems slight compared to the nation’s millions of unemployed citizens, that’s because “the act was never big enough to deal with the scope of the crisis,” Shierholz says. “We opened a hose on this fire, but the fire was way bigger than we expected.”

The bill also ignores one of the biggest drags on the economy: housing. New home construction provides jobs, and real estate values boost net worth and encourage spending. But construction is at a standstill, supply exceeds demand, prices are still falling, transactions have slowed, and nearly 11 million households are in a negative equity situation. The last two points are particularly worrying since Americans stuck in their homes cannot relocate to find work.

Thankfully, Obama is expected to unveil housing-related measures in the coming months. Policy-makers and academics have floated a few options. One would convert empty houses into rental stock to ease oversupply. Mortgage refinancing to help those with negative equity is also on the table. With any refinancing, someone has to swallow the losses—either the government or the banks—and it will be tough to get lenders on board. One possible solution is allowing banks to share in future home-price appreciation, as Harvard economist Kenneth Rogoff suggests.

The problem remains that political gridlock ensures any idea to fight unemployment moves at a glacial pace or gets watered down before it can be implemented. Even the modest (by some accounts) spending measures in the current jobs bill will not appeal to Republicans if the charade over the debt ceiling is any indication. That’s why the likes of Shepherdson doubt the act will pass intact. Ironically, the conditions are still right for borrowing and spending. Financial Times columnist Martin Wolf recently wrote that bond markets are telling governments to do just that. The current yield on U.S. 10-year Treasuries, for example, is the lowest in 60 years. “The need is to combine borrowing of cheap funds now with credible curbs on spending in the longer term,” Wolf wrote.

Time is running out. Many of the jobs lost during the recession, primarily in the construction and manufacturing industries, are not coming back, says Porcelli at RBC. Furthermore, the longer people stay unemployed, the harder it is for them to find work. Skills atrophy—a disaster in a competitive job market—and the long-term jobless become tainted in the eyes of employers. So the country has historically experienced a natural unemployment level of just over 5%, the rate in the years ahead could be as high as 7.5%.

None of this bodes well for Canada, particularly after its own lacklustre record creating jobs the past couple of months. In August, the country actually lost 5,500 jobs. Of course, it’s important not to read too deeply into the performance during a single month; the dip is tiny and can be explained by temporary factors, such as census-worker layoffs and an oil-pipeline shutdown in Alberta. But as Holt at Scotiabank writes, “Jobs momentum has clearly been lost in Canada as no jobs have been created for two months now.” Both RBC and TD Bank Financial Group also lowered near-term growth forecasts for the economy in September because of worsening conditions in the U.S. and Europe, and this uncertainty will prevent employers from hiring.

Derek Burleton, deputy chief economist at TD, expects the unemployment rate to actually tick up another 0.2%, to 7.5%, by the end of the year even if the U.S. doesn’t fall into a recession; but he pegs the odds of a double-dip at 40%, and warns that if it happens, “Canada’s economy would most likely follow suit, and we could get a couple of quarters of outright employment contractions.”

An even more bearish assessment comes from David Madani, Canadian economist with Capital Economics in Toronto, who argues unemployment will hit 8% next year. He’s concerned not just about weakness in the U.S. and Europe, but with the overheated housing market here at home. Real estate is a huge part of the domestic economy—housing-related investment accounts for one-fifth of GDP—and a shock to the global economy could trigger a correction in the bubbly housing market and potentially push Canada into a recession.

Because of these risks, the federal government’s pledge to remain flexible, and its renewed focus on job creation, is entirely necessary. “There is clearly a growing risk that further stimulus measures will be required,” Madani says. It’s far too early to say what specific initiatives could be implemented, but such a move could mean the government will be forced to push back its goal of finding $4 billion in savings and balancing the federal books by fiscal 2014–15. Madani also doesn’t expect the Bank of Canada to raise rates until after 2012. A rate cut might even be in order. “We’re not quite there yet, but we do acknowledge the chances,” he says.

And in the face of economic uncertainty, it’s reassuring to see government and policy-makers considering aggressive action.