Four ideas for fixing the long-term unemployment crisis

April 25, 2013

There's been a lot written lately on the tragedy of long-term unemployment. Thanks to the lingering effects of the recession, there are still 4.7 million Americans who have been out of work for at least 27 weeks. And, increasingly, they're becoming unemployable.


Job applicants wait in line at a job fair on March 22 in San Jose, Calif. (Paul Sakuma - AP)

Some companies won't even look at the resumes of the long-term unemployed, and many of these stigmatized workers are simply dropping out of the labor force — possibly for good. Paul Krugman worries that "we are indeed creating a permanent class of jobless Americans."

So is there anything that can be done? There seems to be no shortage of policy suggestions out there. At a sparsely attended Joint Economic Committee hearing on Wednesday, various experts offered some ideas for helping the long-term unemployed.

1) Better training programs. Harry Holzer of Georgetown University made the case for "education and training programs, to create worker skills that better match newly available jobs." Randy Johnson of Workforce Development, Inc. suggested a variation on this: Congress could help states set up clearinghouses "that would help employers connect with individuals seeking an internship or another on-the-job learning experience."

2) Wage subsidies for displaced workers. Holzer also suggested wage insurance "for displaced workers whose earnings are permanently reduced by their loss of a good job." Likewise, Johnson told Congress to consider "offering a 'wage replacement differential between a jobseeker’s new starting wage and their past employment as they start out." The idea is that laid-off workers, especially older workers, wouldn't take as big a hit to their paycheck if they had to take low-wage jobs.

3) The government should just hire people. Kevin Hassett of the American Enterprise Institute was also on board with work subsidies and training programs (though he said that government training programs “are a national embarrassment”). But he also made the case for direct government hiring for the long-term unemployed.

“The stigma of long term unemployment may be ameliorated by a short-run jobs program that recruits the long-term unemployed to assist with the normal functions of government,” Hassett said.

4) Congress and the Fed should push for full employment faster. Meanwhile, over at the Roosevelt Institute, Mike Konczal argues that there's a much, much more straightforward way to help the long-term unemployed. Namely, full-employment policies.

When the economy is running on all cylinders and labor markets are tight, then companies  will hire anyone — even workers who have been unemployed for more than a year. This is exactly what happened in the late 1990s:

Of course, that's easier said than done. Think tanks like the Hamilton Project and the Economic Policy Institute have estimated that the United States is still many years away from the full employment levels of 2007 — let alone the very tight labor markets of the 1990s.

So how do we get there more quickly? One possibility is that the Federal Reserve should keep stepping down harder on the gas — although as Tim Duy recently discussed, Fed officials are worried that it's impossible to keep inflation low and bring unemployment down to 1990s levels without creating another destabilizing asset bubble. (In that case, Duy points out, maybe the Fed should think about loosening its commitment to low inflation.)

Jared Bernstein, meanwhile, argues that Congress should think harder about how to get back to full employment. That might include more infrastructure spending and other stimulus programs. But there also may be a role for "direct public job creation."

He's not talking about 1930s-style WPA programs, but things like a small welfare program in the stimulus that subsidized work for low-income families and, according to one analysis, created some 250,000 “new temporary jobs that would otherwise have not existed.”

Trouble is, Congress would need to pay attention first. And long-term unemployment doesn't seem to be a top priority around Capitol Hill. As National Journal's Niraj Chokshi reported, "When a hearing to explore how to get the long-term unemployed back to work kicked off on Wednesday morning, only one lawmaker was in attendance."

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Dylan Matthews · April 25, 2013