Economic policy, though, is driven by statistics — because it has to be. It is affected and informed by the human stories that populate the charts and graphs, but in the end the statistics carry the day. There are literally millions of stories, and the pain and heartbreak embedded in them have an effect on policy makers. But in the end it is the “how many” that fits into the harsh reality of the economic policy decision process.
Long-term unemployment has been especially worrisome to economists, and the numbers have finally collided with the economic policy process in the Congress. Both the House and the Senate are considering legislation to extend unemployment benefits to the long-term unemployed — those who have been jobless for more than 27 weeks.
Beyond the political differences that divide Congress, the long-term unemployment problem presents lawmakers with new and unfamiliar dimensions.
Washington state’s economy provided an early insight into the problem. Not very long ago the jobs picture in our state could be drawn with just three primary colors: agriculture, logging and Boeing.
Each of these sectors brought with it a hard-earned reputation for volatility, and the result was a boom-and-bust state economy that was very much like the nursery rhyme about the little girl who had a little curl right in the middle of her forehead. When it was good it was very, very good. And when it was bad it was horrid.
In the good years, small firms needing workers often had serious problems finding people to fill openings. Some firms would become so desperate for help that they joked about using the infamous “mirror test” to select candidates: If an applicant’s breath could steam up a mirror he or she got the job.
The bad years brought unemployment, lots of it, but in recent decades the characteristics of the job losses changed. Like a preview of the recent recession’s effects, many of the jobs lost were never coming back. The forest products industry, in particular, began a decline from which it would not recover and those who had supplied its labor didn’t just have to wait out another cycle. They had to find work doing something else, somewhere else.
Economists make a distinction between cyclical unemployment, those jobs lost to an economic downturn, and structural unemployment, when an industry contracts or restructures because of technological change or some outside factor such as foreign competition or a shift in our environmental laws. Generally speaking, it was pretty easy to tell the difference. Cyclical jobs lost would come back; structural jobs lost wouldn’t.
The economic recovery from this recession has been so weak that economists are worried about a new form of structural unemployment: people whose jobs came back … but not for them.
A recent research paper presented at the Brookings Institution’s Spring Conference explored the characteristics of the long-term unemployed. The authors, three Princeton University economists, found that if a worker who loses his or her job doesn’t find another one right away, the odds of finding one diminish rapidly with each passing day. One newspaper reporting on this research used the headline, “Unemployed? You might never work again.”
The long-term unemployment problem we face today is primarily structural, and this tells us that monetary policy — easy money and low interest rates — will not fix it.
The economic issue for the Congress, then, goes beyond politics to what has been done, what can be done, and what should be done.
Attaching a fixed time limit to unemployment benefits is not simply a mean-spirited idea. Based on the European experience, which now includes a virtually permanent underclass of unemployed workers, many believe that unemployment benefits are a disincentive that prolongs unemployment. There is some evidence of this, although it is not overwhelmingly conclusive.
Part of our long-term unemployment problem is a classic structural change. Laid off workers were replaced by technology and workplace innovations to an extent that the jobs simply don’t exist anymore.
Another part of the problem is the Two Stigma program many employers use to evaluate job applicants. Simply being unemployed provides the first stigma on an applicant’s resume. And many of the long-term unemployed are more experienced, older workers. That is stigma number two. That makes it very tough to get an interview, let alone a job.
Congress has a bleak choice between a heartless withdrawal of jobless assistance and funding a benefits program that doesn’t address the problem. Only the innovation and ingenuity of American workers and entrepreneurs can be of any real assistance to us. Let’s hope that Congress calls on them for their help.
James McCusker is a Bothell economist, educator and consultant. He also writes a monthly column for the Herald Business Journal.