The Conservative Ideas That Could Solve Chronic Unemployment

If the president embraces some conservative solutions and Republicans want to do anything other than repeal Obamacare, they could agree on a jobs package.

National Journal
Norm Ornstein
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Norm Ornstein
Jan. 29, 2014, 3:04 p.m.

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.”

(Cheers, ap­plause.)

“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.

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