Jobs Debate Comes Amid Troubling Economic Forecasts

Posted March 16, 2010 at 4:29pm

Weird as it is to write this, we are nearing the stretch run for health care reform. When it is finally past us — I share in the assessment of Intrade, the online market, that there is a much better-than-even chance of enactment — Congress will turn its attention back to the many other issues still on the plate.

[IMGCAP(1)]Some have not yet been resolved, such as climate change, immigration and financial regulation. Others are on the road to refinement, like No Child Left Behind. Then there is the issue that has received a lot of attention and a lot of legislation but will continue to command even more attention and legislation for the foreseeable future: jobs.

It is of course not surprising that jobs is the big domestic issue of our time. Official unemployment remains stubbornly high at 9.7 percent and could easily move back into double digits. Real unemployment is much higher, since the official rate does not include people who have stopped looking for jobs. The only time in our adult lifetimes that unemployment was higher was in the late fall of 1982, when it hit 10.8 percent.

Politically, Democrats might take a bit of comfort from that — since it was right around the time of Ronald Reagan’s first midterm, and his Republican Party took a hit but not a catastrophic one, losing 26 of the 33 House seats they had gained in 1980 and actually picking up one seat in the Senate. But the gloom that hit voters in 1982 was not as deep as it is now, partly because our sense of full employment back in the late 1970s and early 1980s was higher than in the past few years — more like 6 percent, compared with 3 percent to 4 percent of late — and the willingness to punish the president’s party might have been lessened by the divided government at that time.

Let’s look beyond the politics. There are much more worrisome trends. Those hardest hit by this recession are younger workers, especially those in the “career builder” stage of 25-34 and those even younger, and it’s worse still for African-Americans in those age ranges. For African-Americans overall, unemployment has been increasing faster than for other groups; for those without a high school diploma, it is currently at a staggering 21.3 percent. If unemployment rates stay high for a long time, and the equilibrium point is ratcheted up for a generation or more, the problems are especially severe for this generation.

Don Peck has a telling and troubling article in the March Atlantic about the social costs of a new jobless era. For young people, the failure to establish a track record of employment, or to use a job at an early age as a takeoff point to a career, can have debilitating and even catastrophic effects throughout a lifetime. Earnings a decade later are substantially lower than for those who stayed employed — and the lag lasts throughout their careers. He notes that research shows that “as much as two-thirds of real lifetime wage growth typically occurs in the first 10 years of a career.” Educated people unfortunate enough to emerge in the work force during tough times are much less likely at mid-career to work in professional occupations or more prestigious jobs, or to move from the jobs they have secured. And other studies show much higher rates of depression, stress and problems in physical health years later among those who did not work during their formative employment years.

Among African-Americans, Peck refers to work done by William Julius Wilson about the profound differences between neighborhoods in which people are poor but employed and those where people are poor and jobless. Wilson is not exactly optimistic these days.

Thus, the jobs issue transcends both politics and the immediate need to relieve pain for those families suffering from unemployment — it has consequences that can be frightening for the long-term future social fabric of America. But as we have seen, government attempts to create jobs or move quickly to reduce unemployment are not on the whole terribly powerful. Government can create temporary public-sector jobs, and given the numbers above, it might well want to go back and look at what worked in the New Deal and how it might be adapted now, especially if tied to a national service requirement for young people. But the big engine of job growth is the private sector, and most government policies to encourage job creation in the private sector don’t work very well.

There is one idea out there, however, pointed out to me by my American Enterprise Institute colleague Kevin Hassett in his Congressional testimony, that deserves both serious consideration and fast-track action. It is to adapt an idea taken from Germany called “Kurzabeit,” which means “short work” and refers to job-sharing. In Germany, Hassett notes, the policy “enables firms that face a temporary decrease in demand to avoid shedding employees by cutting hours instead. If hours and wages are reduced by 10 percent or more, the government pays workers 60 percent of their lost salary. This encourages firms to use across-the-board reductions of hours instead of layoffs.”

Hassett notes that this policy fits the preferences of companies that face substantial costs of hiring and training workers to replenish their work forces when the recession ends, and it makes keeping employees, even in the face of tough economic times, much more cost-effective. Many states have tried work-sharing programs, but they are not working very well because the government’s contribution is not large enough. Hassett’s research suggests that the benefits could be substantial while the costs, compared to many other jobs initiatives we have tried, would be relatively low. And since minorities and young workers are often the first ones laid off, this program could have major benefits in ameliorating some of the problems noted above.

If Kevin Hassett, a free-market conservative, can endorse this kind of government encouragement for job-sharing, there is little reason for it to face the same kind of partisan and ideological divide that we have seen with other attempts to deal with our economic problems. It ought to move near or to the top of the Congressional priority list as soon as health care mercifully moves from the to-do list to the checked list.

Norman Ornstein is a resident scholar at the American Enterprise Institute.