Employment Crisis

03.08.13

The Federal Government Should Hire the Long-Term Unemployed

Too many people seem to have left the labor market for good. Here's how to get some of them back.

Long-term unemployment is literally one of the worst things that can happen to you.  When you look at happiness studies, you see that people acclimate to even terrible events: widowhood, divorce, terrible injuries.  But they don't acclimate to long-term unemployment.  They are still miserable years in.  And before you ask: no, this is not an artifact of America's weak safety nets putting people into increasing financial misery.  The study I'm referring to was done in Europe.

This misery has been the single most notable characteristic of the last five years.  It's the one thing that the government should be the most focused on.  But so far, we've attacked it with extremely blunt instruments, mostly macroeconomic demand-boosters.  And so far, those blunt instruments have failed to hit their target.

Matt Yglesias points out the result, in the form of this graph from the New York Times.  The graph is of the Beveridge curve, which represents the relationship between vacancies and unemployment.  Usually, they're pretty consistently inversely related: high unemployment means low vacancies, and vice versa.  But during the Great Recession, something changed:


"If you look exclusively workers who've been unemployed for fewer than 27 weeks, the curve looks totally normal" says Yglesias. "What's shifting the curve is all these people who've been out of work for a long time."  For people who weren't thrown out of work during the Great Recession, the job market has almost returned to normal. But for people who lost jobs and didn't find another one quickly, the job market is dreadful.

Over long periods of unemployment, human capital depreciates.  Two things happen: one is that employers don't want to take a risk on you, when they've got someone with a job right here.  The other is that people actually lose skills (even very basic skills) and many of them fall into the maw of depression.  The end result is that you can end up with a large group of people who are functionally unemployable.  It's bad for them, bad for their families, and bad for the rest of us, who lose a functioning, contributing fellow citizen.

This has happened once before in America: during the Great Depression.  Ultimately, it took World War II to break the back of the long term unemployment that persisted until the 1940s.  Factories were hiring anyone who could breathe and turn a wrench.  When the war ended, those workers were rehabilitated for the labor market.  

Thankfully, we're probably not going to have another World War II.  So how to rehabilitate workers without the all-consuming demands of war production?

Here's one suggestion: the government could hire them.  

No, I'm not talking about WPA jobs (though I also think that those sorts of jobs would make a fine alternative to unemployment insurance).  WPA jobs absorbed some of the excess labor during the Great Depression, which was a fine thing, but they don't seem to have cured labor scarring.  From the perspective of an employer, getting a job created mostly for the purposes of employing people isn't necessarily much different from staying unemployed.  You're still sending a signal that no employer wanted your labor enough to hire you for the sake of getting your labor, rather than for the sake of giving you a job.  

But even now, with governments cutting back, there are government vacancies being filled.  Why not institute a special preference for people who experienced long-term unemployment between 2009 and 2013?  We already have preferences for veterans and the disabled.  It would be easy enough to make long-term unemployment a similar "plus factor".  Unless you believe that the employer bias against the long-term unemployed is entirely rational--and I am pretty skeptical about this--then this sort of preference should be an all-around win.  It wouldn't, by itself, be enough to solve the problem.  But even a small start is worthwhile.