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The Agenda

NRO’s domestic-policy blog, by Reihan Salam.

The Case for Serious Employment Programs



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Mike Konczal argues that, rather than devise policies narrowly-tailored to address the problem of long-term unemployment, we ought to focus on boosting the general economy. Mike is an advocate of large-scale fiscal stimulus, and so his particular vision of how to achieve full employment is unlikely to find many takers on the right. What I have found encouraging, however, is that a growing number of conservative policy thinkers, led by Ramesh Ponnuru and James Pethokoukis and David Beckworth, among others, have embraced nominal output targeting, and also that Megan McArdle and Kevin Hassett have recently endorsed direct employment programs for the long-term unemployed. Megan identifies the following possibilities:

We could, for example, replace extended unemployment benefits with a WPA-style jobs program. We could implement a federal hiring preference for the long-term unemployed, akin to the benefit that veterans get, paired with a very lengthy probationary period in case some of the long-term unemployed are unemployed because they’re lazy or useless. We could offer to suspend payroll taxes for those who rehire the long-term unemployed: one or two months for every month of unemployment. We could offer people in areas with very high unemployment a mobility grant to move elsewhere.

These things would be expensive. But they’re not more expensive than having fellow citizens permanently drop out of the labor force, which costs us in three ways: first, because they are not producing anything, which makes all of us a little bit poorer; second, because they may well end up finding their way onto government benefits, such as Social Security Disability; and third, because those folks are our friends and family, and seeing them suffer makes us suffer too.

And Hassett, in testimony before the Joint Economic Committee (that, shamefully, no Republican lawmakers and only four Democrats attended), offers the following menu of policy options, which overlaps with Megan’s:

1) Direct hiring into government jobs. The stigma of long term unemployment may be ameliorated by a short run jobs program that recruits the long term unemployed to assist with the normal functions of government. This may allow individuals to look for a new job while employed, a change that may have a large impact on placement.

2) Policies directed at geographic mismatches. These might include improved empowerment zones, and possibly programs to assist workers as they move from areas with weak labor markets to areas with strong labor markets.

3) Privatized training. Our government training programs are a national embarrassment, and the unemployed would be better off if the monies were available to individuals who themselves chose the skills they wish to acquire.

4) Work subsidies. Programs that provide employers with tax incentives to employ the long term unemployed may encourage them to hire them.

5) Work Share programs. The U.S. currently has some programs that allow employers to cut hours of workers in downturns and let them receive some unemployment insurance, but they are very little used. There was also a program in Georgia24 that allowed workers to train and try out employees for a period of eight weeks while they continued to receive unemployment insurance, with the goal of the workers being hired at the end. We need to expand programs like this and experiment with others that may nudge employers towards hiring the long-term unemployed.

Hassett makes no effort to assess how much such programs would cost. Rather, he calls for policy experiments that can be rigorously evaluated, which makes sense.

What I find somewhat surprising is that the numbers involved do not appear to be as astronomical as I might have assumed. Lawrence Mead’s Expanding Work Programs for Poor Men suggests that the cost of a serious effort to raise employment levels among less-skilled men would be relatively high, as even generous initiatives like the New Hope Project in Milwaukee faltered when they weren’t mandatory and when they didn’t involve intensive case management. And of course Mead was writing about a population of 1.2 million men that was in need of work enforcement programs, a population that is smaller than the long-term unemployed as a whole. Nevertheless, his estimates are instructive. Drawing on the work of Harvard sociologist Bruce Western, who assumes that a robust employment program that would create paid positions lasting for a year would cost $15,000 per client. America Works, a private workforce development firm that works primarily with “hard-to-serve” clients, charges up to $4,250 to place workers with private employers, depending on how long the jobs actually lost. America Works appears relatively inexpensive because employers pick up the tab for wages. Mead estimates that scaling up America Works to cover the national population has in mind would cost $3.4 billion a year, while Western’s approach would cost $8.4 billion when additional services, like drug treatment, housing, and Pell grants, are factored in. Given that the average state spent $27,536 per inmate in 2008, these numbers look fairly modest. If intensive work programs reduce the incarceration rate, the public sector could achieve substantial savings. 

The cost of serving the larger universe of unemployed and underemployed workers would be much larger. Mead cites the work of Gordon Berlin and Wendell Primus, who have called for increasing the EITC subsidy rate for workers without dependents from its current 7.65 percent (up to a maximum of $457) to 25 percent (up to a maximum up $2000), a measure that would cost $29 billion to $33 billion a year while reaching 35 million workers. By way of comparison, the state and local tax deduction was worth $70.2 billion in FY 2011. 

Right now, it is hard to imagine a Republican lawmaker proposing halving the state and local tax deduction to finance wage subsidies aimed at the boosting household incomes and employment levels at the bottom of the labor market. Congressional Republicans, most of whom represent monolithically Republican districts, have resisted far less ambitious proposals to improve the lives of middle-income wage-earners, blithely unaware that they’re setting themselves up for political pain ahead. But if there is going to be a Republican revival, it is going to be built around fighting unemployment. 



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