For all the focus on Obamacare and deficits and debt, the biggest immediate problem facing America right now, one with immense long-term implications, is that of chronic unemployment.
Those unemployed for six months or more have been far higher in number and proportion of all those unemployed than at any time since the Great Depression. From the time we hit bottom after the economic collapse in the fall of 2008, long-term unemployment has been at or over 40 percent of all those unemployed.
We also know that long-term unemployment now is deadly; an ingenious study done by economist Rand Ghayad, who sent fake resumes to employers with job openings and found that better-qualified and experienced applicants who had been out of work for more than six months were much less likely to be called for interviews than less-experienced individuals who had only recently lost their jobs. And this group—those looking for work for many months and unable to find it—are now screwed coming and going; they are the ones losing access to unemployment benefits.
We know that people out of work for a long time rarely achieve earnings that equal what they had before they lost their jobs; we also know that younger people at the early stages of their careers are particularly damaged if they get bumped off the first rung or two of their career ladders; they suffer higher rates of depression, drug and alcohol abuse, and other problems later in life, and underachieve significantly in their earnings. And we know that the phenomenon has been unusual for the United States; it is far more common in many countries in Europe, where stifling regulations provide major disincentives for companies or others to hire people, because it is very difficult to fire or reassign them when tough times come. But this time is different here at home.
In his State of the Union message, the president found a bold way on his own to try to ameliorate this problem: He pulled CEOs of major companies together to pledge not to discriminate in hiring decisions against the long-term unemployed, an ingenious route to using the presidential power to help solve a problem in the face of congressional intransigence. But it remains to be seen whether CEO pledges turn into real policy change.
Much more has to be done, and the real innovations have to get buy-in from Congress. The good news is that there are good ideas out there that have been proposed or endorsed by well-credentialed conservatives. And Obama raised a set of objectives that should—if the president embraces some of the ideas and if Republicans want to do anything other than repeal Obamacare—find coalitions to make a jobs package.
Here is what Obama said Tuesday night:
"So tonight, I've asked Vice President Biden to lead an across-the-board reform of America's training programs to make sure they have one mission: Train Americans with the skills employers need, and match them to good jobs that need to be filled right now."
"That means more on-the-job training, and more apprenticeships that set a young worker on an upward trajectory for life. It means connecting companies to community colleges that can help design training to fill their specific needs. And if Congress wants to help, you can concentrate funding on proven programs that connect more ready-to-work Americans with ready-to-be-filled jobs. I'm also convinced we can help Americans return to the workforce faster by reforming unemployment insurance so that it's more effective in today's economy."
On the idea of apprenticeships, we have a broader plan in robustly red South Carolina. That is a program that enables young people (and others) to combine education with apprenticeship, to learn trades and develop technical expertise and skills, through partnerships with the state, its schools, and companies and industries. Combined with more and better vocational education, this can mean trained people able to take high-value jobs where we currently have gaps because of a lack of training.
Of course, apprenticeships should not be like unpaid internships; they should carry a wage, subsidized if necessary, and tied to both work and training.
The best list of conservative ideas on dealing with long-term unemployment comes from my American Enterprise Institute colleague Michael Strain, in an acclaimed piece in National Affairs. Strain understands the stakes with the number and proportion of long-term unemployed, and he offers a set of proposals that could easily be embraced by the president and Democrats, even as they fit within the GOP's wheelhouse. One small one, in line with the SOTU, is to reform the unemployment-insurance system, providing a modest cash bonus for people when they get jobs and go off unemployment, and providing lump-sum payments monthly instead of weekly, giving financial incentives for individuals to start jobs at the beginning of new pay periods instead of waiting for the weekly UI check.
Another is to find ways to facilitate relocation for those who can't find jobs near their homes, but would find high-quality opportunities in other areas or regions. A simple step: providing real and accessible information for the unemployed about labor markets around the country, to people who have no clue that the lack of jobs that fit their experience and expertise may not be true in other regions. A government-industry partnership to make this information easily accessible would be nearly cost-free and could be very beneficial—make it almost like a Match.com or Jdate for job-seekers and job-providers.
Of course, that is not enough for people who have been out of work for a long time and cannot afford any of the upfront costs to relocate. So the second step is relocation subsidies, generous amounts to pay reasonable costs for moving and relocating; there might be provisions to repay over a long time through a modest payroll deduction for those who can secure good jobs in their new locales. Such assistance might also include help finding places to live. Strain wants to limit these subsidies to the long-term unemployed, and recognizes that it won't work for many who can't or won't leave their home areas, and also recognizes that there is a downside: depopulating places that are already struggling. But it is a good adjunct step to help solve the problem.
Another idea is to allow firms to pay new hires lower wages under certain circumstances, with an expanded Earned Income Tax Credit or other subsidy making up the difference for the workers. This would provide an incentive for companies to hire, taking a bigger risk on those who have been out of work for a long time, and gradually reducing the subsidy as the employees prove their worth. Here is what AEI's James Pethokoukis suggests: "Combine a wage subsidy with a lower minimum wage for the long-term unemployed. A possible compromise would be to (a) boost the federal minimum wage to $8.50 an hour—which would put it at all-time high, properly adjusted for inflation—and then (b) index the wage to inflation, and finally (c) top it off with a $1.50 wage subsidy, also inflation indexed. If Obama proposed some version of this, he might be surprised at the Republican response."
Strain also endorses an idea long supported by our colleague Kevin Hassett, to employ a form of the German program for job sharing. This involves a subsidy to firms that spread out the hours of work among existing employees instead of laying off a subset of their workers. If a firm with 100 employees forgoes laying off 20, and instead tells all 100 that they will work four days a week instead of five, and if there is a subsidy for the employees to make up for their lost hours, the cost to the government will be the same as providing unemployment benefits to the 20 laid off, but none will fall into the ranks of the unemployed. The firm gains because when it is ready to ramp up as the economy improves, it will not have to go out and hire, and train, 20 newcomers, but has experienced personnel ready to go to full time. A number of states actually have job-sharing incentives; it should be expanded to all.
Even a robust combination of all or most of these ideas will not solve our unemployment problem. The addition of a focused infrastructure program, also endorsed by Strain, could provide a jump start to the economy, but some of the problems will persist for a long time. But these ideas would undoubtedly help. And there is no ideological reason that they cannot be endorsed by a wide range of political and nonpolitical actors.
This article appears in the January 30, 2014 edition of NJ Daily.