Back to Work
Long-term unemployment is a serious problem. Liberals don’t have an answer. Conservatives can do better.
Dec 16, 2013, Vol. 19, No. 14 • By MICHAEL R. STRAIN
Democrats on the House Ways and Means Committee wrote a letter on the Tuesday before Thanksgiving to Rep. Dave Camp, Michigan Republican and Ways and Means chairman, urging him to devote some committee time to extending federal unemployment benefits. At issue is the Emergency Unemployment Compensation (EUC) program, enacted in 2008 to offer qualifying unemployed workers benefits above and beyond what are available during normal economic times. Typically, the federal-state Unemployment Insurance (UI) system offers 26 weeks of benefits to qualifying unemployed workers. Given the severity of the Great Recession, Congress and the president correctly decided to extend the maximum duration for which workers could receive unemployment compensation. Partly because of EUC, some unemployed workers could receive benefits for up to 99 weeks. Even in the depths of the recession, “99 weeks” became notorious in certain conservative circles.
Something better than this
The program has been extended several times, and is scheduled to expire again three days after Christmas. An estimated 1.3 million workers who have been unsuccessfully looking for a job for 27 weeks or longer (the “long-term unemployed”) will immediately lose benefits if the EUC program is not extended.
The expiration of EUC thus provides an opportunity for conservatives to consider their response to the serious problem of long-term unemployment. The left’s answer is clear: Extend UI benefits. What should the conservative response be?
Some conservatives dislike unemployment insurance, arguing that it amounts to the government “paying people to stay unemployed.” If the government were to cut off benefits, the logic goes, then the unemployed would search harder for jobs, be more willing to take a less-than-perfect-but-still-adequate offer, and the unemployment rate would fall.
There is a kernel of truth here, of course—in order to qualify for benefits a worker must be unemployed. But there are other qualifications to receive benefits in addition to being unemployed: among them, that the worker must be able to work, available for work, and actively seeking work.
Even given these conditions, it is easy to imagine some unemployed workers fitting the conservative stereo-type; you can probably picture a young, unmarried man, without any kids, laid off in a reasonably good economy, taking a couple of weeks of government-funded vacation before really starting his job search in earnest. And the weight of the evidence is that unemployment insurance does extend the duration of jobless spells, even if the magnitude of that effect is relatively small during serious economic downturns.
Having said that, it is quite hard to imagine that a significant number of workers who have been unemployed for 27 weeks or longer are engaged in a halfhearted job search because they don’t want to lose the leisure time their $300-a-week check allows. It is also hard to believe that UI is significantly contributing to long-term unemployment, given its demographic makeup. A report released this summer by the Urban Institute found that nearly half of the long-term unemployed in 2012 had at least some college education. More than 1 in 10 were college graduates, and 4.5 percent held advanced degrees. Nearly two-thirds of the long-term unemployed were in their prime working years, between the ages of 26 and 55. Nearly one-third were parents, and a little over one-third were married.
In other words, a large share of the long-term unemployed are people with relatively high earnings potential and personal responsibilities that extend beyond themselves. It is hard to imagine an educated worker in her prime working years with a kid at home having allowed a $300-a-week check to stand between her and a strenuous job search for over half a year.
Why, then, are the long-term unemployed finding it so hard to get a job? Simply put, the labor market has yet to heal. Aggregate demand is still weak. The 7.3 percent unemployment rate is quite high. The share of the population aged 25 to 54 with jobs fell by a staggering 4.9 percentage points during the recession, and has recovered only 0.6 percentage points of that loss. The ratio of unemployed workers to job openings has fallen to 2.9 from its July 2009 peak of 6.7, but it is still considerably higher than its pre-recession average. On top of a lousy labor market, there is growing evidence that the long-term unemployed are unattractive to employers simply because of the length of their unemployment. Hiring managers are asking, If no one else has taken a chance on this worker, why should I? Maybe previous employers have seen something wrong with this worker that I haven’t yet.
There are 4.1 million long-term unemployed workers in the United States today. That is staggering. Happily, the number is down from its post-war high of 6.7 million, reached in April 2010. Prior to the Great Recession, the postwar high was just 2.9 million, in June 1983. A stunning 36 percent of the total unemployed are long-term unemployed. The previous high was 10 percentage points lower, also in June 1983.
These millions of workers are suffering—financially, emotionally, spiritually. Some of them may never work again, and may be forced to subsist on welfare, increasing the rolls and expense of those programs. Society is also suffering: A large pool of willing and able workers are idle; our already segmented society is even more segmented; our country is less dynamic, vibrant, and thriving.
It is easy to see why the Democrats on the House Ways and Means Committee—and liberals generally—want to continue funding extended UI benefits for the long-term unemployed. And, if for no other reason than the limited time before EUC expires, extending the program is the prudent course. But conservatives should want to do more than the left has suggested. To throw money at the problem and be done with it is not the answer. The long-term unemployed need help to get back on their feet, to earn their own success, to flourish.
One thing conservatives might push for is relocation assistance—to help the long-term unemployed move from a bad local labor market to a good one. The job market varies widely across cities and states. Instead of continuing to cut UI checks to a New Jersey worker who has been unemployed for eight months, why not cut him a check to help him move to North Dakota, where he has a much better chance at getting a job?
As mentioned above, the evidence suggests that many long-term unemployed workers are “scarred”—their lengthy spell out of the workforce is making it difficult for them because firms view workers who have been unemployed for so long as risky hires. Why not reduce the risk associated with the hire by lowering the minimum wage for long-term unemployed workers? A firm may not want to take a $7.25-per-hour risk on a long-term unemployed worker, but might be willing to take a $4 risk. If we lower the minimum wage for the long-term unemployed, then we’ll need to supplement their earnings with an expanded Earned Income Tax Credit or some other government-funded wage subsidy.
To help make sure that we aren’t adding any new workers to the rolls of the long-term unemployed, states without worksharing UI programs—about half of them at the moment—should start them. Under worksharing, a worker who has his hours reduced by his employer in response to a temporary lull in demand can receive a prorated UI benefit. This makes it easier for firms to reduce employees’ hours by, say, 20 percent, rather than laying off 20 percent of their workforce. Government shouldn’t tilt the scales towards layoffs by prohibiting workers who have their hours reduced from receiving prorated UI benefits.
These ideas hardly exhaust the policy approaches conservatives should consider. To most effectively help the long-term unemployed, though, the U.S. economy will need to return to a state of broad-based, steady growth. Conservatives certainly should continue to oppose harebrained (see Clunkers, Cash for), cronyist, and inefficient spending. But there are projects the federal government could assist that would advance conservative goals.
Helping the long-term unemployed get back to work is one such goal. As is increasing economic mobility to further the conservative vision of a fluid, dynamic society, characterized by energy, filled with citizens working to realize their ambitions. One way to advance these goals would be to improve transportation networks within cities and their outlying areas in order to shorten commute times from low-income neighborhoods to employment centers.
Recent research from economists at Harvard and the University of California, Berkeley, suggests that socioeconomic segregation within cities and their outlying areas plays an even greater role in limiting the ability of low-income Americans to rise than was previously thought. Many low-income Americans face commute times measured in hours, not minutes. Public policy can shorten the distance between working-class neighborhoods and employment centers by shortening commute times for low-income workers.
In its cheapest incarnation, this would involve extra buses that run nonstop from low-income neighborhoods to employment centers, both in city centers and in suburbs. And of course, more money for better roads, bridges, and tunnels would shorten commute times for everyone, including the working poor.
Only 88 percent of men between the ages of 25 and 54 years are currently participating in the labor force, down 9 percentage points from the years following World War II. There are many reasons why fewer prime-age males are working, but decreasing the cost of working by decreasing commute times should allow more men to participate in the labor force than currently do. And better transportation networks might open up job opportunities to the long-term unemployed that are currently closed due to distance.
In addition to directly helping the long-term unemployed and the working class by opening up job opportunities to them, the indirect effect of a multiyear infrastructure project would be a boost to aggregate growth. The health of the labor market and the health of the broader economy are intertwined—conservatives should see helping one as helping both.
Conservatives need coherent policies that resonate with the American people and convince them that conservatism is about more than ever-lower marginal income tax rates, budget accounting, and making an idol of the heroic entrepreneur. Policies to help the long-term unemployed and advance economic mobility fit the bill.
Michael R. Strain is a resident scholar at the American Enterprise Institute.
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