Millions of Americans are approaching a grim anniversary: one year without paid work.
Many of those who lost jobs in the explosion of layoffs last March, and in the subsequent months, are still trying to find new work. Roughly 8 million fewer Americans are working today than at this time last year, just before the coronavirus gripped the economy.
Unemployment is traumatic. Studies of unemployed workers, including recent work on the 2008 financial crisis, find that joblessness takes a toll on physical and mental health, frays personal relationships and even undermines the future earnings of jobless workers’ children. The evidence also shows the damage caused by unemployment compounds with time.
As the pain of unemployment rises, so does the difficulty in finding new work.
Sidelined workers begin to lose their networks. They struggle to stay current. Their unused skills atrophy. A particularly striking study of Swedish workers published in 2008, for example, found declines in reading comprehension among those unemployed for long stretches.
Stronger economic growth will be sufficient to help many people get back to work. After the 2008 crisis, experts who argued that long-term unemployment might be irreversible proved to be wrong. In a strong labor market, employers are willing to take risks, to invest in training, to tolerate learning curves and otherwise do what is necessary to find workers.
But given the high cost of unemployment, there is a powerful case for the government to help people find work quickly, even if they might eventually find jobs on their own.
There is also reason to worry that relying on growth may not be good enough.
Job losses during the pandemic have been concentrated among low-wage workers. The Federal Reserve estimates that among American workers in the bottom fifth of the wage distribution, unemployment may have climbed as high as 20%.
Some of those low-wage workers are particularly vulnerable to replacement by automation, and recessions tend to provide employers with both the opportunity and the incentive to experiment with new ways of doing business. Massachusetts Institute of Technology economists David Autor and Elisabeth Reynolds argued in an analysis last year that the crisis could reduce the need for some kinds of low-wage workers, like those who serve business travelers.
Even as experts predict that the economy will be reshaped by this crisis, the pandemic is making it harder for workers to learn new skills. Comparing the current recession to the financial crisis of 2008, the Pew Research Center found that a larger share of American workers now say they’re considering seeking work in a different field but that the share of workers who are actually pursuing training in another field has declined.
Retraining workers sounds like a good answer to unemployment, and the government has a long history of throwing money into training. But much of that money has been wasted.
Penny-pinching is a common problem. States often tout “tuition-free” programs that cover only a part of the actual cost of obtaining an education. Effective training also requires care and persistence. Programs work best when they are tailored to meet the specific needs of employers, when states ride herd on providers to ensure students are actually learning useful skills, and when states work with students to bridge the gap between finishing a degree and starting a job.
The Biden administration did not include funding for retraining programs in its $1.9 trillion coronavirus package. That is a mistake Congress can correct. There is an opportunity to reprise the Obama administration’s Race to the Top program for public schools by requiring states to compete for funding by developing evidence-based job training programs.
Even effective training programs, however, don’t create jobs — they create qualified workers. The benefits accrue only if the government also gets the big picture right, by bringing the coronavirus under control, pumping money into the economy and keeping interest rates low.
The government can also help to drive job creation by delivering the kind of major investment in infrastructure that both political parties have been talking about for years. President Joe Biden has said he will present his version of such a plan in the coming weeks. The case for infrastructure spending doesn’t rest on high unemployment. Pumping federal money into green energy projects and bridge repairs and lead abatement is an investment in the future. But the jobs are nice too.
Another intriguing way to help workers, which can be deployed in combination with training, is to subsidize job creation by supplementing wages for new hires.
In 2009 and 2010, the federal government spent $1.3 billion to place about 260,000 low-income people in jobs, temporarily paying about 80% of their wages. The Obama administration also started 13 longer-term experiments on a smaller scale, offering wage subsidies to reduce unemployment among groups that struggle to find jobs.
In a final analysis published last year, the government concluded that some of the programs had produced sustained increases in employment and earnings. There were other benefits, too, like stabilizing homes for children and reducing criminal activity. Other programs didn’t work, and on the whole the economic gains were smaller than proponents had hoped. But as with the failures of training programs, policymakers now know more about how to build better programs.
Britain is continuing to refine the use of subsidies. The government has introduced a program, the “Kickstart Scheme,” aimed at preventing people between the ages of 16 and 24 from falling into long-term unemployment. It has committed 2 billion pounds to provide employers with a subsidy equivalent to the minimum hourly wage for up to 25 hours a week for as long as six months.
Congress also could provide funding for another round of experiments in the United States, building on the lessons learned after the last crisis.
The United States doesn’t have a proven strategy for minimizing long-term unemployment. Unfortunately, a clear case for action is not the same as knowing what to do. But uncertainty does not justify inaction. The way to help as many people as possible is to build on past successes and to improve on past failures. Since this will not be the last economic crisis, by next time the government may have learned what is necessary to help people return to work.
