By: Sharon Poczter
December 27, 2013
As roughly 1.3 million Americans stand to lose their unemployment insurance this Saturday, perhaps now, as a reaction, the political agenda might finally return to the enduring issue of long-term unemployment. Over four million Americans remain long-term unemployed, which excludes those who work part-time, on contract or those who have simply stopped trying to find work. And even though these statistics alone should provide enough political incentive to truly address the problem, it hasn’t. We are still engulfed in a “more money or less money” Red Sea political debate regarding long-term unemployment rather than an honest, frank attempt at addressing this economic and social issue through efficient government policy. Unfortunately, like most difficult issues, continuing to ignore the problem will only make it worse, creating a lost generation of the long-term unemployed who have both given up, and are increasingly unemployable.
Although attention has drifted away from unemployment since the election, long-term unemployment should, however, be viewed as an important growth issue. Beyond the purely human aspect of having a population of people the size of Ireland unemployed long-term, it is difficult to deny that from consumption and entitlement cost perspective, long-term unemployment may be contributing to the broader issues of our economy. In particular, we must begin to acknowledge that long-term unemployment is not just symptomatic but also causal of our continued low-growth equilibrium.
In order for policymakers to begin addressing unemployment with tactical solutions, both sides of the political spectrum need to stop viewing unemployment benefits as an incentive mechanism rather than a temporary safety net if an individual loses his or her job. By arguing that removing or extending benefits can alter incentives, policymakers are implicitly treating unemployment benefits as payment for searching for a job. This was not the intent of the program, nor is it clear that in a low-growth economy, this simple incentive mechanism will work. Removing the benefit does not help, for instance, if jobs do not exist and keeping it in place will not help if those jobs are extremely low-wage, and the unemployed will rationally choose dropping out of the workforce altogether. The unemployment benefit itself, therefore, should not be used as the primary mechanism through which government policy helps transition the long-term unemployed back to employment.
Instead, the government should approach the issue like a manager, identifying the “pain points” that are keeping the long term unemployed from working and tailoring policy to these issues. Is relocating too expensive for some? Are employers statistically discriminating against older people? While the answers to these questions are not simple and in fact may be different geo-demographically- surely the answer as to why someone in rural Nevada has been unemployed for 26 months is likely to be different than why someone in New York City has, until these questions are authentically addressed, we are failing the long-term unemployed. Further, policy solutions directly addressing these issues, like relocation vouchers, tax incentives for businesses providing on-the-job training of unemployed, should be subjected to cost-benefit analysis, instead of solely emotional debate over more or less money in benefits.
Even though the answers may be complicated and the legislative answers not particularly sexy, we need to confront these issues head-on, because we can’t move on until we do. Certainly, we cannot begin to fathom pivoting to inequality while such a fundamental cause of inequality remains so greatly unaddressed. After all, it is difficult to argue with the idea that perhaps a major cause of inequality is some people having jobs while others don’t, especially for such a long period of time. Without addressing long-term unemployment, therefore, addressing inequality also remains an abstraction, rather than a reality.