USA - Long-Term Unemployment: Consequences and Solutions

Testimony 

before the Joint Economic Committee

Kevin A. Hassett

John G. Searle Senior Fellow, Director of Economic Policy Studies, American Enterprise Institute, April 24, 2013

The impact of long term unemployment on the lives of unemployed Americans and their families is about as negative as anything economists study. It is clear that something terrible happens to individuals as they stay unemployed longer, but that this negative effect is not responsive to normal policy interventions. Accordingly, it is imperative that we think outside the box and explore policies that reconnect individuals to the workforce. As our knowledge of what works is so spotty, this is an area that is crying out for policy experiments that can be rigorously evaluated. A list of policy ideas that may be helpful in this space would include

1) Direct hiring into government jobs. The stigma of long term unemployment may be ameliorated by a short run jobs program that recruits the long term unemployed to assist with the normal functions of government. This may allow individuals to look for a new job while employed, a change that may have a large impact on placement.

2) Policies directed at geographic mismatches. These might include improved empowerment zones, and possibly programs to assist workers as they move from areas with weak labor markets to areas with strong labor markets.

3) Privatized training. Our government training programs are a national embarrassment, and the unemployed would be better off if the monies were available to individuals who themselves chose the skills they wish to acquire.

4) Work subsidies. Programs that provide employers with tax incentives to employ the long term unemployed may encourage them to hire them.

5) Work Share programs. The U.S. currently has some programs that allow employers to cut hours of workers in downturns and let them receive some unemployment insurance, but they are very little used. There was also a program in Georgia24 that allowed workers to train and try out employees for a period of eight weeks while they continued to receive unemployment insurance, with the goal of the workers being hired at the end. We need to expand programs like this and experiment with others that may nudge employers towards hiring the long-term unemployed.
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