The current U.S. job market is, by most measures, in great shape. Unemployment, at 3.6 percent, stands at a 50-year low. Underemployment, which includes 4.4 million (about 3 percent of the employed) part-timers who want full-time jobs, is 7.1 percent, its lowest since late 2000. Any way you cut it, that’s a tight national labor market.
Yet, amid all those strong numbers, more than 1 million people, about a fifth of the unemployed, were long-term unemployed last month, meaning they had been looking for work for more than half a year. Millions more remain out of the labor force — neither working nor looking — but say they want a job. No question, these measures are much improved. In 2010, close to half of the unemployed were long-termers. But they are still big numbers, not that far below long-term averages, and they signal something important for policymakers: Even as we close in on full employment, there are people who face steep barriers to labor market entry.
For these folks, strong labor demand is not enough. Many face labor market discrimination and/or skill deficits; some have criminal records. They thus need extra help finding and maintaining jobs, at least initially, and the benefits of helping them would accrue to all of us. The long-term unemployed are particularly notable in this regard: They have been looking for work for at least half-a-year, and they have not given up. Often against steep odds, they are trying to “play by the rules.” Helping them over the hump will both boost their financial independence and add, at the margin, to the economy’s output.
In fact, a groundswell of policy proposals have emerged to do just that. Some of the proposals target specific groups, such as a smart new plan from Sens. Chris Van Hollen (D-Md.) and Ron Wyden (D-Ore.) to reach the long-term unemployed. Others are much more sweeping, like Sen. Cory Booker’s (D-N.J.) pilot program for a federal job guarantee for anyone who wants one, or the Green New Deal’s similar proposal targeted both at the those facing labor market barriers and those displaced from fossil-fuel jobs.
Though the United States is an international laggard in such efforts — according to Organization of Economic Cooperation and Development statistics, beside Mexico, we devote the least amount of GDP to “active labor market policies” — we have a long history of mostly small-bore subsidized jobs programs (here’s an invaluable evaluation). They are often oversubscribed, even in tight labor markets, and well-designed programs — those with job training that syncs up to local employer needs, wraparound services (like child care and housing) and subsidies that last long enough for participants to gain experience — have been shown to reliably achieve their goals.
I learned this firsthand during the last recession, when, as a member of the Obama administration’s economics team, we helped to stand up a temporary, flexible subsidized jobs program through Temporary Assistance to Needy Families. The program led to about 250,000 jobs, and in some instances, poor workers managed to lastingly overcome steep barriers to work. When the program sunset, as scheduled by the Recovery Act legislation, even some Republican governors wanted Congress to extend it.
How do these programs work? Consider the new Van Hollen/Wyden proposal. It offers employers a temporary subsidy to hire the long-term unemployed and can give potential workers the job training and work supports (transportation, child care, substance abuse treatment) they often need to get and keep a job. So it attacks both demand-side and supply-side deficits. Local workforce development boards or community organizations apply to the Labor Department to establish a program in their area, and if they are approved, they find employers willing to give a subsidized worker a shot.
The jobs would typically last for a year and would pay whichever is higher in a state: the minimum wage or about $12.40. To be eligible, a worker must be at least 18, out of work for at least half-a-year and actively seeking employment for at least a month. The baseline subsidy would last for a year, but it could be extended for positions that require longer-term training leading to a credential.
The theory is that even in tight labor markets, and especially in weaker ones, some employers believe it is risky to hire the long-term unemployed, which of course propels a vicious cycle. Though long-term unemployment itself can erode a worker’s skills or motivation, there is no evidence that long-termers are inherently problematic employees; in fact, the best predictor of unemployment duration is not your demographics; it is the state of the economy when you lose your job. The subsidy offsets the perceived risk and, in so doing, helps to break the cycle.
Imagine, for example, a middle-aged, displaced factory worker, a high school graduate with limited skills beyond what she did at the factory. She has looked for work intermittently over the past few years but has never been able to come up with anything lasting.
A new health-care facility is coming to town, and it needs medical-equipment technicians. Because its owners do not know much about the local workforce, they contact a community-based nonprofit that helps displaced workers stay afloat. The community center applies to the Department of Labor to establish a program, works with the employer to determine skill requirements and trains our displaced worker to maintain and repair MRI machines. Training costs are reimbursed through the program.
The plan includes necessary safeguards, such as disallowing the displacement of an existing, unsubsidized worker with a subsidized one, or replacing striking or laid-off workers. The purpose is to add new jobs for the long-term unemployed, not to replace one worker with another.
There is another potential benefit from such programs. One way to improve any economy’s long-term trajectory is to lastingly move people who want to work off the sidelines and into the job market. The key word, from both the individual’s and the economy’s long-term perspective, is “lastingly.” That is, their labor market participation must be structural, not cyclical.
By that I mean the goal of subsidized jobs is not simply to help someone get temporary work when the job market is tight — work that may end when the business cycle goes south. It is to make permanent changes that help give a worker the experience, training and confidence to stay in the job market. If enough people follow that path, potential growth expands, and the macroeconomy has more room to expand.
That is a big win for all of us.