There is not much good economic news out there. The unemployment rate is 9.1 percent, and JPMorgan forecasts it will rise to 9.5 percent over the next year. The Wall Street consensus is that the chances we are in or will enter another recession are 30 percent to 40 percent. And the darkest spot in the dark economy? Skills-corroding, poverty-inducing, long-term joblessness. The average duration of unemployment has climbed to record highs, and about 44 percent of jobless workers have not had a job in six months.
When Congress comes back from its August recession, the White House will be waiting with a proposal to tackle the overall economic malaise—and long-term unemployment in particular. Details are scant, but Laura Meckler of the Wall Street Journal reports (subscription required) that the White House is putting together a package that includes ambitious infrastructure investment and a renewal of the payroll tax credit. It may also include retraining programs focused on aiding the long-term unemployed, but economists are skeptical it will do much for them.
It is a problem worth tackling, one way or another. For workers, long spells of joblessness mean not just a loss of income but also the loss of community, routine, health, and skills. The longer a worker is unemployed, the longer he or she tends to stay unemployed. Businesses hesitate to hire people who have not been working. Those workers tend to get discouraged. The result is what wonks call "hysteresis," where the scars from joblessness diminish the chance of future employment and reduce future earnings.
To tackle the problem, the White House is reportedly looking to copycat a Georgia program that ushers the unemployed back into the workforce. Georgia Work$ matches potential employees with local businesses for up to six weeks of workplace training. The worker gets a weekly stipend in addition to keeping his or her unemployment benefits. The employer gets free labor and the option to hire the worker at the end of the program. Local politicians and businesses love it, though companies have kept on just 24 percent of the 23,000 workers who completed a training program, the Journal says.
Would such a retraining or subsidy program work nationally? Well, one already has. One of the most successful initiatives funded by the 2009 stimulus package was the TANF Emergency Fund, which gave states money to run jobs programs. With the funds, 36 states and the District of Columbia put 240,000 previously unemployed people to work. One county in Tennessee reduced its unemployment rate from 27.3 percent to 18.6 percent in less than a year. Even Gov. Haley Barbour, who rejected billions in stimulus funding for Mississippi, loved it—so much so he has kept the program going.
The federal dollars for the TANF Emergency Fund ended last September and other job-creating stimulus funds are drying up. How to make sure Version 2.0, if it passes, works this time around? For one, retraining programs work better if they are on the job rather than in the classroom. They need to be adequately publicized to unemployed workers and businesses in need of labor, or otherwise sit idle. They also need strictures to ensure businesses create new jobs, rather than just picking up free work. "If [the White House] going to do it, they need to make sure that businesses have a net increase in payroll to get the subsidy," says Ross Eisenbrey, vice president of the Economic Policy Institute. "You don't want a business to lay someone off and go get a new employee for free for two months."
But they tend not to be a panacea. Such programs help some long-term unemployed workers, but they don't make the macro picture much rosier. A business looking to hire might pick up an eligible long-term unemployed worker at the government-subsidized rate, where it might have looked at a wider pool of applicants otherwise. "Long-term unemployment has become such a big proportion of total unemployment that targeting it seems to me like a very good idea," says Michael Reich, an economist at the University of California-Berkeley, and the director of its Institute for Research on Labor and Employment. But while a program "might have some impact on who gets a job," he says, "there is going to be no impact on how many jobs there are."
And how many jobs there are matters—a lot—for the long-term unemployed. "Training is not going to move the needle," says Jesse Rothstein, another economist at Berkeley, the former chief economist for the Labor Department, and a former senior economist on the White House's Council of Economic Advisers. A lack of appropriately skilled workers "is not a major explanation for why unemployment is 9 percent right now. If you want to move the needle, you need to create demand. This doesn't do that." In that sense, the infrastructure and tax-cut provisions in the proposal might have a bigger effect on long-term joblessness than any program targeting the long-term jobless.
What would really help? Eisenbrey suggests bringing back the TANF Emergency Fund. Reich suggests a second stimulus, as big as the first one. Rothstein says the Federal Reserve should announce a 4 percent inflation target and Congress should authorize massive infrastructure investment. At worst, he quips, "Hire a worker to dig a hole, another to put a $100 bill in the bottom of the hole, and then a third worker to put dirt on it."