The Governors of Massachusetts, Connecticut, and several other states have recently proposed employer tax credits as measures to fight high unemployment in their states. Such policies are also being consid-ered at the federal level. The authors find that such policies, in fact, do little to increase aggregate de-mand, and instead only modestly reduce the after-tax cost of labor in an economy with high unemployment, falling wages, and weak demand They suggest a more effective approach to creating jobs in the states: increasing spending in labor-intensive sectors and programs that are matched by federal funds, such as Medicaid. These expenditures would be particularly effective if they were financed through temporary high-income tax increases.