Policy Responses to Long-Term Unemployment
Thursday, June 17, 2010 at 5:32 pm
We are in the midst of a jobs crisis, with the unemployment rate stuck around 9.7 percent. The labor market is particularly bleak in terms of duration of unemployment. Half of the unemployed have been out of work for more than six months, nearly five million for more than a year and one million for two. The ranks of the 99ers, who have collected the maximum weeks of state and federal unemployment insurance but remain without jobs, are increasing.
This morning, Berkeley economics professor and blogger Brad DeLong asked, “So what do we know about policies to successfully move the long-term unemployed back to where they ought to be?” Atrios jokingly responded, “We could hire them to dig holes and then fill them up again,” elaborating, “the way to do it is to have the government hire people to do stuff. Inevitably not all of that stuff will be tremendously productive, but plenty of it will be.”
Last week, the House Ways and Means Committee held what I think is the first Hill hearing on long-term unemployment. And a number of policy experts came to explain the gravity of the situation and to propose solutions. Their papers make for good, if depressing, reading: Here they are from Larry Mishel, president of the Economic Policy Institute; Heather Boushey, senior economist at the Center for American Progress; Michael Reich, economics professor at the University of California, Berkeley; Till von Wachter, economics professor at Columbia; and Jason Taylor, economics professor at Central Michigan University.
And, from their testimonies and a bit of research, here are some proposals that could help Americans out of work for more than a year (or two):
- Offer bonuses for long-term unemployed persons who find work. A number of studies show that paying people to find jobs works to reduce the average length of unemployment. One Illinois study, for instance, found that offering unemployment insurance recipients $500 bonuses for finding a job cut spells of joblessness by about two weeks. However, other analyses cast doubt on the efficacy or fairness of such programs. (Offering reemployment bonuses to the long-term unemployed might feed into the inaccurate presumption that they are lazy, and don’t want to find jobs.)
- Offer bolstered work-search help for the long-term unemployed. Expand offices that help workers find jobs, and update those offices to help the unemployed find short-term, contract or telecommuting work. Such offices do not always work well, but they do work on aggregate. This Upjohn Institute study, for instance, finds, “While the size of the estimated impacts differ, the consistent finding is that both UI work search requirements and reemployment services tend to shorten insured unemployment durations by speeding return to work.”
- Expand retraining programs and increase outreach. A number of academic studies throw cold water on the notion that job retraining programs really work on a broad scale. This USA Today article gives an excellent layman’s explanation of why retraining in the midst of a jobs crisis is not always the best path to employment. That said, much of the current unemployment crisis is due to structural unemployment; those workers need to find different fields. I wonder if targeted programs, focused on taking workers from collapsing fields (construction) into expanding fields (home health work), might work better than the broad-based programs of the past.
- Expand relocation allowances. The government already provides workers with funds to help them move to take a job. The program could be expanded or improved.
- Encourage self-employment. Another pre-existing program that could be expanded into a number of other states and made more generous for the long-term unemployed. The Self-Employment Assistance Program excuses unemployment insurance recipients from work-search requirements, and lets them keep proceeds from businesses they start or expand.
- Expand work-sharing programs, and include incentives for employers to hire the long-term unemployed.
- Provide generous tax incentives for employers to hire the long-term unemployed.
- Hike interest rates to prevent inflation. Just kidding.
Of course, the problem is, all of these programs cost money. Politicians’ concerns about the nation’s debt have made the likelihood of a deficit-funded direct-hiring program virtually nil. There is no easy and cheap policy solution, and therefore it will be difficult for Congress to act. In all likelihood, I fear, hundreds of thousands of workers — older workers in particular — will simply never find a proper, well-paying job again, instead moving into Social Security and in many cases disability benefits to stay afloat.
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