The U.S. labor market is a long way from healed. The unemployment rate of 6.1 percent, down from 10 percent in 2009, is misleading: Long-term unemployment accounts for a much bigger share of the total than usual. Millions who would like full-time jobs are having to work part time. Millions more have given up looking for work and are no longer part of the count.
Lack of demand remains the chief problem. The Federal Reserve’s power to make up the shortfall seems to have reached its limit and a paralyzed Washington has said no to further fiscal stimulus. One neglected avenue remains, however: helping to connect the unemployed to companies that are doing well and looking to hire.
The unemployment rate varies widely from state to state – from 7.9 percent in Mississippi to 2.7 percent in North Dakota. This shows what’s possible, but at the same time, it’s a puzzle: If labor markets are tight in some places and slack in others, why don’t the unemployed move? This is where policy could usefully focus. High mobility of labor always was seen as a particular strength of the U.S. economy, but lately it has been more myth than reality. Recently, labor mobility has fallen to its lowest since records began in the 1940s.
People can’t or won’t move for various reasons. The unemployed in Michigan may be unaware of openings in Utah. They may lack the needed skills. Plus, moving is expensive: For people with a house to sell, mortgaged for more than it’s worth, moving may be unaffordable. And for families that rely on state-specific government assistance (as many of the unemployed do), moving is complicated. At modest cost, some of these problems can be addressed.
First, the government should do more to help unemployed workers search for new jobs. Studies comparing policies in a range of industrialized countries find that job-search assistance – in the form of job-brokerage services, referrals to training programs and help with the costs of relocating – is good value for money. It makes a difference and it’s cheap.
Subsidies for training or retraining also make sense. This involves bigger outlays, but good training programs can pass the cost-effectiveness test.
Granted, the record of the existing federal Trade Adjustment Assistance program is discouraging. Created in the 1960s and changed many times, the TAA was intended to help with job searches and relocation, as well as pay training subsidies to a narrow group of eligible candidates. Periodic evaluations have typically found poor results. The program should be simplified and then enlarged.
U.S. tax and welfare policies need to be streamlined, too. As things stand, both make it much harder for people to move.
Putting all this right won’t be easy. The first step is to acknowledge that the United States has a new kind of unemployment problem, and that solving it will demand new thinking.