Unemployment in the U.S. | What Can Policy Do?

The U.S. labor market has been reeling since the onset of the Great Recession in December 2007. Public concern has largely focused on the unemployment rate, which rose to double digits and has stalled at more than 8 percent. This rate is unacceptably high, and macroeconomic policy efforts have been unsuccessful in bringing it down write Robert Haveman, Carolyn Heinrich, and Timothy Smeeding in Policy Responses to the Recent Poor Performance of the U.S. Labor Market published on lafollette.wisc.edu. (Adapted excerpts by Job Market Monitor follow)

The overall unemployment rate, however, masks more fundamental and troublesome developments. Perhaps the most serious is the precarious situation of working-age men with modest education and few job skills, who increasingly find themselves unemployed, underemployed, or out of the labor force. These workers are some of the nation’s most vulnerable. Some are older, some are younger, but they have in common limited schooling and deficient basic skills. They are also disproportionately racial minorities or foreign born.

Twenty percent of American men of prime working age (25-54) group are not working (compared to less than 5 percent in the 1950s) and 35 percent of those men of prime working age without high school diplomas are out of the labor force. Among low-income young men, particularly minorities, the jobless rate is shockingly high: more than 30 percent of black males ages 16-24 are unemployed, and the rate is even higher for the teenagers in this group. These figures don’t count those who have given up on finding work.

Underlying these developments is the direction of technological change and workplace organization, with machines replacing less-skilled workers and more-skilled workers running and repairing the machines. More open international borders have led to the substitution of lower-paid foreign workers for U.S. workers who have few skills and only modest education. The outcome of these trends will determine job prospects, especially for men with few job skills and modest education.

Many in lower-paying jobs have taken pay cuts and see few career possibilities and stingy nonwage benefits. Indeed, the fast-growing personal service sector (retail sales, cashier, customer service) now accounts for more than 20 percent of jobs, with a large majority paying wages below $15 per hour. The traditional manufacturing and construction path from high school to the middle class has largely dried up for younger workers.

Many young men (under age 30 with no more than a high school degree), 70 percent of whom are fathers and unlikely to be living with their children, are in this situation. Others have abandoned the formal workforce and coped with declining economic fortunes in ad hoc and often unproductive ways. The social support system is designed primarily to help people working in low-paying jobs and living with children—typically not absent fathers. Longterm unemployment for young adults has created permanent scars that will reduce earnings growth.

This deep labor market polarization reflects two developments. The first is an increase in high-skilled, high-wage jobs (and, to a smaller extent, low-wage, low-skilled jobs). This trend reduces relative opportunities for workers with some schooling but few technical skills who in prior years held routine-task production and clerical middle-wage jobs. The second development is a flat high school graduation rate and poor college graduation rates—particularly among men.

What Can Policy Do?

A combination of fiscal stimulation and monetary easing are two tools that economists and policymakers suggest to address recession, but they have little to offer to improve the labor market. The U.S. Federal Reserve has unleashed much of its stimulus arsenal, including U.S. Treasury bond buybacks, and has driven interest rates to unprecedentedly low levels. There is little interest in fiscal stimulation given the current budget situation. Neither cuts in public spending nor increases in taxes will offer the sort of stimulation necessary to improve the U.S. labor market. Both approaches reduce demand for goods, services, and workers

No matter how fiscal tightening is pursued, such a step is unlikely to increase jobs. Tighter fiscal policy will not solve the problems of a shortage of labor demand and the lack of skills and training possessed by the large pool of low-skilled, low-educated unemployed workers, particularly men. Addressing these problems will require more expansive, creative, targeted measures.

The U.S. labor market response to the Great Recession has been tepid, modest, and untargeted compared to EU nations. Macroeconomic policy is at an impasse as fears of greater deficit spending collide with proposals to increase spending on job creation programs. Many of the programs and policies being implemented in Europe are not being pursued in the United States.
On the microeconomic frontier, the response has been very uneven. Most middle-aged and more established unemployed workers have been supported through extended unemployment, and many will end up on the disability insurance rolls where policies and procedures to encourage work have yet to be instituted. All of those with jobs benefited from gross payroll tax reductions; those without jobs have been largely neglected. Younger workers who are not eligible for UI and cannot find jobs are at greatest risk. They are falling further behind as we turn the corner of the recession.

Income support programs like Food Stamps (now the Supplemental Nutrition Assistance Program, or SNAP), UI and the EITC have helped to mitigate the effect of the recession on those who qualify, but they have not generated jobs, especially not for people most affected by the recession. As the income support components of the 2009 American Recovery and Reinvestment Act and the 2010 Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act are trimmed by deficit reduction efforts, forestalling increases in the nation’s poverty rate will be difficult. More jobs that pay decent wages are needed and in short order.

Additional education and training of the more general kind, e.g., increasing four-year college graduation rates, will take a long time to bear fruit. There is more hope for shorterterm vocational training programs, especially in growing personal service sector jobs, but again the effort is relatively feeble.

As for what can be done now, some marginally employed and non-employed workers are now involved in formal and informal training programs that will impart some job relevant skills. More people could be encouraged to do the same. Employers must play an important role in offering training opportunities that lead to decent jobs with chances for advancement, working together with the public sector as in Western Europe, especially for young low-skilled men and women. It appears that there is room for employers to invest more in these workers, too. Since the trough of the
recession, more than 85 percent of the growth in national income through the first quarter of 2011 has gone to profits and capital incomes.

Supply-side and demand-side approaches are designed to improve the employment prospects of disadvantaged workers by generating ongoing job creation pressures at reasonable cost. By targeting the additional employment on segments of the labor market with the most severe unemployment problems, they promise to increase employment and output without significant inflationary pressure. Measures such as these directly alter the wage structure in private labor markets, raising the take-home pay of low-skilled workers relative to those with more secure positions in the labor market. Their potential is to reduce inequality in employment and earnings
in a way that encourages independence, work, and initiative.

Clearly, jobs programs for the most disadvantaged Americans would do more to ameliorate employment and earnings disparities than recent stimulus-oriented proposals for job creation, such as revenue sharing with state governments or additional infrastructure spending, which might help some stay employed or increase employment among select groups (e.g., seasoned construction workers), but would do little for the many who are not working.

Source:

Read More @ Policy Responses to the Recent Poor Performance of the U.S. Labor Market

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