Political proposals generally fall into one of two groups. Grossly foolish methods of something that needs to be done and perfectly sensible plans for things that don’t need to be done. The few that are decent plans for something that needs to happen are so rare that they’re immediately obvious to all – sticking all the politicians well away from the voters in a Virginia swamp for example.
Ro Khanna is proposing a perfectly reasonable plan here, something to deal with long term unemployment. The problem is that when people have been unemployed for a year, perhaps two, they tend to drop out of the workforce entirely. They’ll not get hired – just try to do so with no work experience in the previous 18 months – and they know it so they don’t try. Thus, if we can reconnect them with the world of work, get them back into any old job at all, then we can get them back on that path to the middle class, a decent career progression.
So, not a bad idea:
What it does promise is a doorway back into the workforce for those who’ve been locked out of it. Under Khanna’s plan, the government would pay employers to hire Americans who have spent at least 90 days without a job or whose earnings during the last half a year left them under the poverty line. The positions would be temporary, lasting up to 18 months, long enough for people to gain new experience and a foothold in the labor market (many workers, such as those who lack a college degree, would be eligible for an extra one-year extension). People could be fired for performance issues, and would be allowed only three stints in the program per decade.
90 days is too short a period of time. 12 months would be just fine. Other than that, great. Except, except, Richard Layard is one of the economists who has been studying this specific problem for decades. It is much more prevalent over here in Europe after all:
The rationale for welfare-to-work is simple. If you pay people to be inactive, there
will be more inactivity. So you should pay them instead for being active – for either working
or training to improve their employability.
The evidence for the first proposition is everywhere around us. For example, Europe
has a notorious unemployment problem. But if you break down unemployment into shortterm
(under a year) and long-term, you find that short-term unemployment is almost the same
in Europe as in the U.S. – around 4% of the workforce. But in Europe there are another 4%
who have been out of work for over a year, compared with almost none in the United States.
The most obvious explanation for this is that in the U.S. unemployment benefits run out after
6 months, while in most of Europe they continue for many years or indefinitely.
The position is illustrated in Figure 1. The vertical axis shows how long it is possible
to draw unemployment benefit, and the horizontal axis shows how long people are actually
unemployed, as measured by the percentage of unemployed who are out of work for over a
year. The association is close, and it remains close even when we allow statistically for all
other possible factors affecting the duration of unemployment.1
This long-term unemployment is a huge economic waste.
Layard actually comes up with much the same solution as well. Subsidise people into jobs so they are reconnected with the world of work. And it’s a fine solution too – vastly better than that idiocy about a jobs guarantee. Except, note, this is a problem that America generally doesn’t have. Sure, the recent recession was of such duration that there is some about but it’s also being rapidly cleared up by the general expansion of the economy. We do keep dragging ever more people into work which is why we can have record hiring numbers and yet an unchanging unemployment number – we’re pulling people from not looking for work into looking for it. For to be counted as unemployed you’ve got to be attempting to find work.
Khanna’s plan thus falls into the class of perfectly sensible plans but solutions to problems we don’t really have. We’ve already solved it by having unemployment insurance stop after 6 months. We don’t need another and extra solution to that same problem.
Oh well, back to the drawing board, eh?