This is the month that unemployment officially fell off the agenda in Washington, D.C.
There are three major levers that policymakers can use to push for full employment in the aftermath of the Great Recession. The federal government can run additional deficits to boost aggregate demand. The Federal Reserve can provided monetary stimulus to increase investment. And regulators can fix the broken housing market to allow for quicker deleveraging and to prevent destabilizing foreclosures.
But policymakers are now easing up on all three levers.
Some of this has been well covered: The Federal Reserve is beginning to “taper” its stimulus efforts, and emergency unemployment insurance is unlikely to be extended in 2014. But there are other, less-noticed ways in which the government is pulling back on employment.
One example: There's the looming expiration of the Mortgage Forgiveness Debt Relief Act, created by then-Rep. Brad Miller (D) in 2007. This tax exemption allowed homeowners to write off the dollar amount of their mortgage write-downs, especially from short sales. The bill allowed many Americans to deleverage more easily. But Congress isn’t going to extend this credit for another year -- a huge unforced error. (Allowing this credit to lapse could also create major problems for homeowners who are part of recent housing settlements.)
Is this pullback justified? Some economists have suggested that broad-based unemployment is no longer the nation’s biggest problem. Instead, we should focus largely on the long-term unemployed — those who have been out of work for 27 weeks or more. These workers often have a harder time finding work, and they’re a significant part of those who are unemployed. And if the long-term unemployed were the country’s only, or even main, economic problem, that might be a good reason to pull back on broad measures and focus on more narrow measures to help these specific workers.
But I find this story incomplete, and too narrow. For one: The economy isn’t just terrible for people who have been out of work for a long time. It’s still terrible even for people with jobs. Quit rates, for instance, are still much lower than they were on the eve of the Great Recession. The rate at which people are voluntarily quitting their jobs has only recovered approximately half of its value. It dropped a point from 2.2 percent, and it stands at only roughly 1.7 percent.
Wage growth is also still anemic, with wages growing more slowly than before the recession. As Ryan Avent noted in a recent compilation of graphs at the Atlantic Monthly, if the economy were at its full potential, or if inflation were a growing concern, then we’d expect wages to be growing very fast to compensate. But neither is happening, which indicates that there’s still a significant amount of slack in the economy.
What’s more, even the short-term unemployed are still having problems. Those who have been unemployed for 27 weeks or less are still finding new jobs at a much slower rate than they were before the recession:
This graphic shows how likely it is for an unemployed worker to find a job according to how long he or she has been unemployed. And it’s lower across the board when it is compared between 2013 and 2007. As Rob Valletta of the Federal Reserve Bank of San Francisco found, “job prospects have declined substantially across the duration spectrum since the recession began.”
On the flip side, we know that tighter labor markets will make it easier for everyone to find jobs, including the long-term unemployed. Here’s a graph of how likely it is that people unemployed for more than a year will find a job over time:
Notice what happens in 1999. The long-term unemployed didn’t suddenly get exposed to cosmic rays that gave them those special worker “skills” that employers are always talking about. Instead, there was significant tightness in the labor market, with unemployment at 4 percent, which lead employers to go out of their way to find and hire them.
But this is not the conversation that is happening. Arguments in favor of policies to promote job growth across the board have nearly vanished. And nothing has really taken its place.
For a while, policymakers were worried about high debt levels. But that argument, which was most famously put forward by Carmen Reinhart and Ken Rogoff in 2010, fell apart earlier this year. The medium-term deficit has shrunk significantly, and, if health-care spending continues to slow, there is a significantly smaller potential long-term debt issue. That means the “grand bargain” for deficit reduction is dead.
In theory, that could open up a space to talk about jobs again. But that hasn’t happened. President Obama has shifted away from jobs to focus on a much-needed, but parallel, discussion on inequality as a generational challenge. The Republicans have simply gone quiet about jobs entirely. But just because the issue has left the imagination of the two parties doesn’t mean that its any less of an actual crisis.
Mike Konczal is a fellow at the Roosevelt Institute, where he focuses on financial regulation, inequality and unemployment. He writes a weekly column for Wonkblog. Follow him on Twitter here.