Long-Term Unemployment Is a Crisis—Here's How to Solve It

by Danny Vinik | April 2, 2014

If you’ve been reading any economic news over the past few months, you’ve undoubtedly heard about the plight of people who have been out of work for longer than six months—in other words, the long-term unemployed. You’ve heard that they number about 3.8 million, that they have similar characteristics to the short-term unemployed, and that 82 percent of them have a high school diploma.

You’ve heard individual stories—like the one that Fed Chair Janet Yellen shared in a speech in Chicago this week. Yellen spoke of Dorine Poole, who lost her job as the recession started and struggled to find a new one. “When employers started hiring,” Yellen said, “two years of unemployment became a disqualification.” You’ve heard about the study published by the Federal Reserve Bank of Boston that found that companies discriminate against the long-term unemployed, in just the way they did to Dorine. Most recently, you heard about of a new study from three Princeton economists—a studying showing that it’s nearly impossible for the long-term unemployed to find steady work.

What you haven’t heard, particularly from lawmakers, are solutions. President Barack Obama paid lip service to the long-term unemployed in his budget, but failed to propose any substantial policies. Republicans have offered even less. And the seems unlikely to change soon. But that doesn’t mean we don’t have potential solutions. Conservatives and liberals have both put forward ideas, sometimes overlapping ones, to help the long-term unemployed. On Wednesday morning, LaDonna Pavetti, the vice president for Family Income Support Policy at the Center on Budget and Policy Priorities, released a new paper on a solution that deserves much more attention: a subsidized employment program.

A subsidized employment program places people in jobs that cannot find positions in the regular labor market and uses public funds to pay some or all of their wages. It’s not such a crazy idea. It’s not even that new. The American Reinvestment and Recovery Act, also known as the stimulus, created such a program in 2009. Known as the Temporary Assistance for Needy Families Emergency Fund (TANF EF), the program gave states funds to offer subsidized employment to low-income individuals. Thirty nine states took the federal government up on the offer. With the $1.3 billion they received in funding, the states “placed about 260,000 low-income individuals in subsidized jobs in less than two years.” In addition, states had significant leeway over how to set up and administer the program. They determined how the funds were allocated, who was eligible for subsidized employment, how the subsidies were paid out and how long individuals were eligible to get jobs through the program.

States took advantage of the flexibility to implement a variety of approaches. Some used intermediaries to pay the wages of those with subsidized employment. Others treated employers like contractors. Some targeted the program at the long-term unemployed or at those below 200 percent of the poverty line. Some states set a maximum wage of $10 per hour while others paid the prevailing wages. While the characteristics of the programs varied, the outcome rarely did: they were almost all huge successes. They led to increased employment and earnings for low-income individuals—often even after the subsidies for their work had run out. The long-term unemployed benefited most of all.

“The long-term unemployed group experienced substantial increases in earnings a year after ending participation in a subsidized employment position as compared to earnings from a year before participation,” Pavetti writes.

For these reasons, conservatives have often supported TANF EF. Kevin Hassett, of the American Enterprise Institute, called it a “cost-effective way to create jobs.” Haley Barbour, the governor of Mississippi from 2004 to 2012, has praised the program. But congressional Republicans refused to renew TANF EF in 2010 and it ran out of funds, although a few state programs have continued with their own funding.

Now is the time to bring the TANF Emergency Fund back. It is a proven, cost-effective way to reconnect the long-term unemployed with the labor market. It would cost just $1 or $2 billion per year—and it could easily pay for itself if it kept thousands of workers off the government doles for decades to come.  The alternative is to let them remain unemployed—in some cases, permanently. That would be an economic disaster, because it would mean the country was losing millions of able-bodied adults from the workforce. But it would also be a human disaster for the millions would struggle to get by.

Source URL: http://www.newrepublic.com//article/117232/subsidized-employment-can-get-long-term-unemployed-back-work