Senior Democratic politicians have begun to sound the alarm on jobs. They want to see some major spending programs, for example an investment in infrastructure, to goose demand and increase economic growth. But so far, the only thing the Obama Administration is discussing, according to published reports, is a renewed payroll tax cut, this time on the employer side. There’s currently a payroll tax cut of two percentage points on the employee side, running through the end of 2011.

Would this work as a job creation measure? Would businesses with lowered costs for hiring then use that extra money to hire more workers, or react by not laying off others? I asked some economists about this, and the reaction was decidedly mixed.

“The major driver of whether or not businesses hire has to do with demand for their services,” said Michael Linden of the Center for American Progress. Government can create and stimulate that demand, but that’s not necessarily what an employer-side payroll tax cut would do. The employee-side payroll tax cut does it, by putting extra money in the paychecks of people, who then will presumably spend it. A lot of that additional consumer spending in 2011 has been eaten up by rising gas prices, but if you believe those prices would have gone up anyway, it’s clear the employee-side payroll tax cut helped by making things less worse.

The employer-side tax cut, however, just reduces the cost of hiring. Larry Mishel of the Economic Policy Institute believes that this wouldn’t move the needle on jobs at all. “The point here is not to lower the cost of labor to get people to hire more workers. The point is to put more money into people’s paychecks throughout the year to increase people’s spending.” Mishel adds that many employers currently have a ton of cash reserves, and they’re sitting on it, rather than spending it to hire workers. “Employers make money when they have customers, and they won’t spend until then,” Mishel said.

Other economists think that it’s worth a try as a less-bad policy that could work on the margins. “It’s better than nothing, it’s better than an estate tax cut, for example,” Linden said, citing a policy that just hands more money to rich people who aren’t likely to spend it. “We also need to fill in that demand gap, but given the political limitations, it’s not a bad idea, though it shouldn’t be the only idea.” Chuck Marr of the Center for Budget and Policy Priorities agreed. “There are things you can do that are more important that would be better,” citing the renewal of extended unemployment benefits before they run out at the end of the year. “But given how weak hiring is, it’s worth trying at this point.”

The Congressional Budget Office made an interesting entry into this debate last year. In an assessment of different stimulus measures on employment, they gave an employer-side payroll tax cut pretty high marks. They said this policy would raise output by $0.40 to $1.20 per dollar of total budgetary cost, a multiplier effect as high as any other option except for extending unemployment benefits, and higher than an employee-side payroll tax cut. They think it could reduce the prices employers charge for their products, stimulating purchases and raising demand, in addition to increasing hiring.

Some economists question this analysis from CBO. “I don’t know exactly why they show that,” said Mishel of EPI. “I’m mystified by it.”

One thing is clear: if the employer-side payroll tax cut would have to be offset by spending cuts to make a deal palatable to the GOP, that would not increase aggregate demand at all, and the stimulative effects would be canceled out. “In isolation it’s not a bad idea,” said Linden of CAP. “But if the deal was, employer tax cut in exchange for $100 billion in spending cuts, that wouldn’t be a good deal.”

There’s also the persistent concern of cannibalizing the payroll tax over and over, and how Republicans would try to use that to weaken the Social Security system, which is funded by the payroll tax, over the long term. A smaller payroll tax, even if bolstered by general revenue during these one-off tax holidays, could be used to infer that Social Security faces greater long-term funding challenges.

Looking broadly, a payroll tax cut on the employer side may stimulate some small portion of demand. But remember that the employee-side version, along with other stimulative measures like extended unemployment benefits, is set to expire in December. Replacing that with the employer-side payroll tax cut would just maintain the status quo at best. And given the weak economic forecasts we’ve seen over the past month, that’s simply not good enough. Said Michael Linden of CAP, “We should not just be talking about extending existing measures. We should be talking about new ones.”