With unemployment at a post-World War II record level and still rising, talk of jobs programs is filling the air. Even the Reagan White House is affected: Administration officials are studying several proposals for targeted programs aimed at reducing unemployment.
There is an interesting irony in these proposals. Under the guidance of President Reagan's new chairman of the Council of Economic Advisers, Martin Feldstein, the administration is looking at ways to fight what is known as "structural" unemployment. That is the underlying level of unemployment that is likely to persist even if the economy is booming. It is broadly defined as the lowest rate of unemployment that can be sustained without pushing up inflation.
The current unemployment rate of 10.4 percent is divided roughly into two parts: an underlying structural rate that Feldstein estimates at between 6 and 7 percent (other economists put it lower), and cyclical unemployment caused by the recession.
The 3.2-percentage-point jump in unemployment since its low in mid-1981 reflects an increase in cyclical, not structural, unemployment. It has come about because of the deep recession since then, which has forced many companies out of business and pushed others to cut back on their work force.
The most obvious "jobs program" to cure this type of unemployment is a simple old-fashioned economic recovery, stimulated if necessary by expansionary fiscal and monetary policy. If recovery is sustained, firms will expand capacity and add new jobs.
Reagan hopes that this process will begin soon. However, economists both inside and outside the administration expect this recovery to be slower than most. That means unemployment will come down only slowly, registering a fall of perhaps one-half to one percentage point a year.
At that rate, it will be some time before the overall jobless rate approaches what economists generally consider to be the structural, or "full," employment level, and before policymakers have to start worrying that further declines will push up inflation.
It is nevertheless worthwhile to consider how to bring that rate down. If it is as high as Feldstein believes, then, even if the economy recovers and all of the recession-induced increase in joblessness disappears, there would still be about 7 million Americans out of a job.
In the 1960s, this "full" employment rate was more commonly thought of as about 4 percent, although some economists question whether it was ever really that low.
Although there is no really convincing reason for this sharp rise, the most popular explanation is demographic. There has been a rapid increase in the number of less-skilled people entering the labor force as the Baby Boom generation has reached maturity and women increasingly have sought to work. Because these workers typically suffer greater unemployment than the average, this has pushed up overall unemployment, the argument goes. To the extent that it is true, there may be good news ahead. Some of these demographic changes are due to be reversed in coming years.
Other explanations center around the role of unemployment insurance and welfare payments. Income-support programs such as these may encourage people to spend longer looking for work, or to drop out of an unsatisfactory job more readily, some economists argue. The work registration requirements of some programs also may have frightened people who have not been working but have not reported themselves as unemployed to begin to do so. This does not represent any substantive increase in joblessness.
Whatever the reasons for the apparent rise in underlying unemployment, it is clear that much of the structural problem is with young people. Those under 25 years old account for about half of the "structurally" unemployed, Feldstein said. Thus, among the proposals under review at the White House are subsidies or tax credits to encourage employment and training of young people, particularly those with few skills. Other proposals would allow workers with jobless benefits to continue to receive part of them, if they get a part-time job, or to trade them for a subsidy to an employer who gives them a job.
Such employment policies should not be confused with traditional antirecession medicine aimed at putting back to work those millions who usually can find jobs, but cannot now. But the problem they address is real enough.