A Moody's study shows you get the largest immediate bang for a stimulus (federal) buck when you expand unemployment insurance benefits.
Obama today defended his modest expansion:
“there are some very legitimate concerns” about the potential expansion of unemployment coverage to part-time workers. But that accounts for only $7 billion of a $787 billion program – a “fraction of the overall stimulus package” and not even the biggest potential expansion of unemployment insurance.
I think using this as a carrot to States is appropriate. I would be leery of forcing States to do this outright, but tying $X to it seems perfectly reasonable. Conservatives are crying foul about how this stimulus package seems more about spending than about jobs. DUH - that's the whole points of a Keynesian stimulus - the idea that in these kinds of crises, you need the spending first to jump start the jobs and output creation. Trying to 'create' planned spending solely out of jobs creation has limits when people and companies just hoard the earnings.