Jobs: Let the good times roll

May 27, 2013 by

In which the government can play an active but limited role

By Michael R. Strain

The most pressing problem facing the United States today is not the federal budget deficit, the national debt, or excessive federal spending. It is the labor market. Yes, the United States does have a deficit problem, but we have a much more serious labor-market problem. In fact, for many workers, it’s a labor-market crisis. According to the Congressional Budget Office, the federal budget deficit is projected to remain more or less stable over the next ten years, fluctuating between 2.4 and 3.8 percent of GDP. (The 2012 deficit was 7 percent of GDP.) Of course, a deficit of 3.8 percent of GDP needs to be trimmed as the economy recovers. But it doesn’t need to be trimmed all the way to zero, and certainly not over the next ten years.

Our real and serious debt problem will be driven not by the next decade’s budgetary spending, but by projected spending on entitlements stretching beyond 2023. We must enact structural changes to our entitlement programs that will decrease future spending, but we should not — as the new House Republican budget does — make reducing the amount of federal spending set to occur in the next several years a higher priority than helping Americans get back to work.

One broad measure of unemployment, which includes workers marginally attached to the labor force and workers who want a full-time job but have to settle for part-time employment, stands at 13.9 percent — significantly higher than its pre-crisis level of a little over 8 percent. The economy has 2.6 million fewer jobs than it had when the Great Recession began. Just 64.4 percent of working-age men are working — the lowest level, by far, since the Great Depression, and a whopping five percentage points lower than at the beginning of the current downturn. Only 58.6 percent of the overall working-age population is currently employed. To find a previous figure that low, you have to go back to the early 1980s. Don’t be deceived by our recently steady (but too slow) job growth — the labor market is treading water and remains very badly damaged.

In particular, the job market for the long-term unemployed is a national crisis. A staggering 4.4 million workers have been unemployed for 27 weeks or longer. This downturn has set the post–World War II record for both the number of long-term unemployed and the share of total unemployed made up of long-term unemployed.

When a worker is unemployed for such a long time, his skill level falls below that of his employed peers and his professional network weakens. Evidence suggests that employers are extremely reluctant to hire people who have been out of work for a long time. Some of the long-term unemployed end up on disability insurance, effectively ending their careers. Our labor-market crisis represents an enormous loss of economic potential — one that will linger for quite some time even while the economy improves — with millions of capable people who want to work tragically sidelined.

The labor market for low-skilled workers is also in crisis. Some 12 percent of adult workers without a high-school diploma are unemployed. The unemployment rate for white teenagers is 21.8 percent; for black teenagers, it’s 40.5 percent. Many of these young workers are trying to gain skills and climb the employment ladder. The current state of the labor market is significantly disrupting their ability to do so, with consequences that will ripple through their careers for many years.

This is a human crisis as much as it is an economic crisis. The ranks of our unemployed are made up of millions of people who are unable to realize their full potential, to thrive, to earn their own success, to pursue happiness. It is our moral obligation to help them get back to work.

What policies should the GOP advocate to help them? Let’s discuss a few. One simple reform would make life easier for employers who don’t want to fire anyone but need to reduce their expenditures. If a firm wants to cut its wage costs by 20 percent, it can fire one-fifth of its workers, or it can tell all its workers to stay home on Fridays without pay. In the latter case, under an option called work-sharing that is available in many places but remains little used, workers would be eligible to receive one-fifth of their unemployment-insurance (UI) benefit. The cost to taxpayers would be the same under the two scenarios. In most cases, the UI benefit would be less than the lost wages, typically around half, so work-sharing would amount to a pay cut (in this case, one of around 10 percent), but workers would stay employed and retain their benefits.

via A New Jobs Agenda | National Review Online.

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