There was one thing that was glaringly absent from the recent debate over extending unemployment benefits: a plan for how to actually help the long-term unemployed get back to work.
President Obama has a chance to fix that in his State of the Union address on Tuesday night.
A little background first:
In December, there were nearly four million people who had been out of work more than 26 weeks. Millions more have dropped out of the labour force altogether. In fact, our unemployment problem is entirely a long-term unemployment problem. Short-term unemployment has already returned to its pre-recession level.
This is why some analysts are starting to say that the labour market is much tighter than people realise. The common argument against that is that both the labour force participation rate and employment-to-population ratio remain well below their pre-recession peaks. Part of the reason for this is demographics – baby boomers are retiring. Part of it is that more young people are choosing to continue their education instead of entering the weak labour market. And part of it is due to discouraged workers dropping out of the workforce.
These trends have caused the unemployment rate to drop to 6.7%. Most analysts expect the labour force participation rate and employment-to-population to rise as the economy improves and Americans reenter the labour force. This could even cause the unemployment rate to rise for a period of time as the economy recovers.
This is all predicated on the belief that employers will eventually hire the long-term unemployed and discouraged workers.
But what if they don’t? What if the 6.7% unemployment rate is a true representation of the current labour market because the long-term unemployed have become permanently unemployable? That would be an economic catastrophe. We would have lost millions of capable, prime-aged workers from the labour force, forever.
As we enter the sixth year of Obama’s presidency, that unthinkable scenario is becoming a possibility.
This is where President Obama’s primetime address comes in.
He should tell Congress that he will send them a deficit-neutral bill in the upcoming weeks specifically focused on helping the long-term unemployed. He can choose from plenty of policies – from relocation assistance to job training to wage subsidies with a lower minimum wage for the long-term unemployed.
While the optimal policy would increase the deficit, congressional Republicans will undoubtedly demand a spending offset. The president should preempt that demand and include one.
Such a proposal offers numerous benefits to the administration. On policy grounds, it would attack the greatest long-term consequence of the financial crisis and would attempt to stop the long-term unemployed from becoming permanently unemployable. Given that the president’s jobs plan is dead on arrival in Congress, it would also be a realistic way to help the economy return to full employment.
That also means it would be a way to combat rising income inequality. Since achieving full employment is the best way to reduce income inequality, getting the long-term unemployed back to work is vital to addressing what the president previously called “the defining challenge of our time.”
It would also stand a chance in Congress. The plan is not an expansion of government and since it’s deficit neutral, Republicans would be unable to object on account of its costs. (Although they may object to the spending offset as they did in the fight over extending unemployment insurance.) In addition, many of these ideas come from a conservative himself, Michael Strain.
This is an opportunity for the president to make a meaningful impact on the state of the economy and income inequality with a proposal that has a chance to become law.
At the very least, it would give Democrats another political talking point if Republicans kill the bill. And he has a chance to do all this in his State of the Union address on Tuesday night.
It’s an opportunity he shouldn’t pass up.
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