A perfectly sensible plan for a problem America doesn't have. Credit public domain

Political proposals generally fall into one of two groups. Grossly foolish methods of something that needs to be done and perfectly sensible plans for things that don’t need to be done. The few that are decent plans for something that needs to happen are so rare that they’re immediately obvious to all – sticking all the politicians well away from the voters in a Virginia swamp for example.

Ro Khanna is proposing a perfectly reasonable plan here, something to deal with long term unemployment. The problem is that when people have been unemployed for a year, perhaps two, they tend to drop out of the workforce entirely. They’ll not get hired – just try to do so with no work experience in the previous 18 months – and they know it so they don’t try. Thus, if we can reconnect them with the world of work, get them back into any old job at all, then we can get them back on that path to the middle class, a decent career progression.

So, not a bad idea:

What it does promise is a doorway back into the workforce for those who’ve been locked out of it. Under Khanna’s plan, the government would pay employers to hire Americans who have spent at least 90 days without a job or whose earnings during the last half a year left them under the poverty line. The positions would be temporary, lasting up to 18 months, long enough for people to gain new experience and a foothold in the labor market (many workers, such as those who lack a college degree, would be eligible for an extra one-year extension). People could be fired for performance issues, and would be allowed only three stints in the program per decade.

90 days is too short a period of time. 12 months would be just fine. Other than that, great. Except, except, Richard Layard is one of the economists who has been studying this specific problem for decades. It is much more prevalent over here in Europe after all:

The rationale for welfare-to-work is simple. If you pay people to be inactive, there
will be more inactivity. So you should pay them instead for being active – for either working
or training to improve their employability.
The evidence for the first proposition is everywhere around us. For example, Europe
has a notorious unemployment problem. But if you break down unemployment into shortterm
(under a year) and long-term, you find that short-term unemployment is almost the same
in Europe as in the U.S. – around 4% of the workforce. But in Europe there are another 4%
who have been out of work for over a year, compared with almost none in the United States.
The most obvious explanation for this is that in the U.S. unemployment benefits run out after
6 months, while in most of Europe they continue for many years or indefinitely.
The position is illustrated in Figure 1. The vertical axis shows how long it is possible
to draw unemployment benefit, and the horizontal axis shows how long people are actually
unemployed, as measured by the percentage of unemployed who are out of work for over a
year. The association is close, and it remains close even when we allow statistically for all
other possible factors affecting the duration of unemployment.1
This long-term unemployment is a huge economic waste.

Layard actually comes up with much the same solution as well. Subsidise people into jobs so they are reconnected with the world of work. And it’s a fine solution too – vastly better than that idiocy about a jobs guarantee. Except, note, this is a problem that America generally doesn’t have. Sure, the recent recession was of such duration that there is some about but it’s also being rapidly cleared up by the general expansion of the economy. We do keep dragging ever more people into work which is why we can have record hiring numbers and yet an unchanging unemployment number – we’re pulling people from not looking for work into looking for it. For to be counted as unemployed you’ve got to be attempting to find work.

Khanna’s plan thus falls into the class of perfectly sensible plans but solutions to problems we don’t really have. We’ve already solved it by having unemployment insurance stop after 6 months. We don’t need another and extra solution to that same problem.

Oh well, back to the drawing board, eh?

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7 COMMENTS

  1. There is a cultural attitude amongst UK (and probably European) employers of: nah! I can’t be arsed to employ this person, but never mind, he won’t starve as he can sign on. Completely ignoring that dole is only enough to live on if you qualify for a whole range of other stuff as well, and if you actually want to live your life in the underclass. Beveridge’s vision of support through transient periods of unemployment has been destroyed by employers themselves refusing to employ people.

  2. What? Employers have a duty to employ people when they don’t have jobs for them? Or are you saying that employers, faced with a vacancy and a suitable candidate are refusing to employ that candidate because he can sign on?

    I’m not sure which position is crazier.

  3. @SE: It’s actually worse than either of the two options you mention, it is the automatic rejection of someone who has been unemployed for a long period on the basis that they are either lazy, shirkers or something is wrong with them, so why take the risk of employing them?

  4. Doubled up with:
    “it says here you’re a software engineer, why have you been washing dishes for the last six months?”
    “well, I like being able to afford to eat”
    “sorry, bugger off, we’re looking for somebody who is already working for us as a software engineer”

    That wouldn’t happen in America, the country is more-or-less founded on the trope of working as a waiter until you get a proper job, a skilled job applicant who *isn’t* waiting tables is seen as they must have something wrong with them.

    • This is not so much a national trope as a consequence of the recent orthodoxy that every young person must get a Bachelor’s degree in any subject that suits their fancy, including Grievance Studies that confirm their pre-existing notions.

      Employers do act as though it would be much safer to choose people already where you want them to move. But there are a lot of drop-outs who figure stuff out for themselves, such as Bill Gates. For many of these, having avoided institutional education, they also shy away from working in large bureaucracies.

  5. Much as being in the bureaucracy induces a person to adopt a self-justifying ideology that the people could not take care of themselves otherwise, being habitually on welfare trains a person to develop excuses for not taking, or staying with, any job. John Galt: So I would phrase this automatic rejection of someone “chronically unemployed” on the basis that he has adapted his culture to make this situation acceptable.

    Khanna is proposing a government program (remember, they tend to make themselves permanent, especially if they can point to a needy constituency) to remedy a problem created by another permanent program. Rather than pay people to do the right thing, we could simply stop paying them to do the wrong thing, or stop penalizing them for doing the right thing. “Entitlements” (alms independent of the recipient’s misconduct) create the entitlement mentality — they are proof that you outrank other citizens.

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