Getting Americans Back to Work: A Long Way Still to Go

For the first time since the start of the Great Recession in 2008, the United States is finally creating a lot of new jobs--252,000 jobs in December, and nearly 3 million over the whole of 2014. Unemployment has fallen to 5.6 percent, the lowest rate since June of 2008.

But the good news masks an equally disturbing trend--far more Americans are dropping out of the work force, and those who are unemployed are remaining jobless a lot longer. The average length of unemployment--currently about seven and a half months--is twice as long as it was prior to the recession. Some three million Americans have been unemployed for six months or longer, and millions more have given up looking and dropped out of the labor force entirely.

The costs of long-term unemployment to the U.S. economy, and to the individuals themselves, are enormous, and the resources to help those individuals are few and fragmented. In two new reports released today, we take a deeper look at the issue, and at how the United States could better tackle the problem.

In our latest Progress Report and Scorecard, “No Helping Hand: Federal Worker Retraining Policy,” my colleague Robert Maxim writes: “The United States’ federal worker-assistance system--the collection of federal programs designed to help job seekers--does not adequately address this new kind of unemployment. It is particularly unable to cope with the massive spike in long-term unemployment brought on by the Great Recession.” These federal programs, the report concludes, are highly unequal, with some unemployed Americans enjoying far greater benefits than others, and are generally insufficient for getting workers back in the labor market, particularly at jobs that pay nearly as well as their old ones.

Many European countries, where long-term unemployment has long been a chronic problem, have far more developed worker assistance and retraining programs than does the United States. And over the last decade, labor force participation has been rising in these countries even as it has been falling in the United States.

But the costs of these “active labor market” policies are steep. Denmark, which has perhaps the most ambitious scheme in the world, spends 2.3 percent of its GDP on worker assistance and training, while Germany, which has the world’s best-developed apprenticeship programs, spends 0.8 percent of GDP on these programs. In the United States, the comparable figure is just 0.1 percent.

But there are important things the U.S. government could do at far more modest cost. In the new Renewing America Policy Innovation Memo, “A Bipartisan Work Plan: Helping America to Work,” former U.S. Trade Representative Robert Zoellick and CFR adjunct senior fellow Matthew Slaughter call for for Congress to embrace a jobs policy overhaul based on three core principles: “concentrate on jobs for the long-term unemployed; supplement wages, when necessary, to encourage employers to increase hiring; and relax congressional budget rules for programs that help people become earners and increase future tax revenues.” They also recommend better assessment of the effectiveness of existing job training programs, most of which have never been subject to proper oversight and scrutiny.

The report calls for far more active engagement of the private sector in training programs, because the employers themselves best know their needs and the types of training required. Where necessary, it calls for federal wage subsidies or an expansion of the earned-income credit to get more people back into jobs, concluding that the costs to taxpayers will be modest. And Zoellick and Slaughter argue that Congress should be prepared to relax its sometimes overly rigid budget rules and recognize in its budget scoring that getting people back to work would boost output and increase tax revenues.

Putting more Americans back to work would seem to be fertile ground for bipartisan cooperation in the new Congress. The two parties came together last summer and agreed in large numbers on modest reforms to federal job training programs. But far more is still needed to address the serious problems of long-term unemployment.