U.S. Active Labor Market Policy: Can the Obama Administration do More?

1. U.S. Active Labor Market Policy:Can the Obama Administration do More? William M. Rodgers III Heldrich Center for Workforce Development Rutgers, The State University of New Jersey May 2009

2. Framing Comments:In asking whether the Administration must go further with its active labor market polices, we must remain cognizant of several trends. • Immediate task was to stop the economy’s bleeding • 16 Month Recession • Over 5.7 million jobs lost • Unemployment rate has jumped to almost 9.0% since December 2007 • Extremely high household debt levels • Retirement and college savings have taken major hits • In asking whether Obama should go further, we must remain cognizant of the ground that workers lost over the past 8 years. Stop bleeding from previous Administration. • Erosion in labor standards • Less effective UI System • Tremendous Slowdown in investment in human priority expenditures • 1975 to 1995: 17.4 to 19.1% of GDP, a 1.7 point increase (0.09% per year) • Compared to a 7.8 point increase (0.52% per year) from 1959 to 1975. • 2001 to 2007: Stalled at 20% of GDP • Linked to stagnation in real wages and growing inequality

3. Job growth has been limited to the government sector.(Employment Change, December 2007 to April 2009) 3 Source: www.bls.gov..

4. The Federal government’s investment in people has stalled, coinciding with the growth in income inequality. (US Human Expenditure Ratios: 1959 to 2006) Trend Line: Based on Growth from 1959-1975 Trend Line: Based on Growth from 1959-2000 Notes: All human priority concerns are defined as government social benefits to persons, social insurance funds, housing and community services, health recreation and culture, elementary and secondary schools, higher education, libraries and other, and income security.

5. Obama Administration’s Response • DOL's Stimulus Package Components ($4.8 billion) • Stop the macroeconomy and labor market’s bleeding • Invest in federal workforce training programs • Funding for training “green” job workforce • YouthBuild investments •  DOL's FY10 Budget ($13.3 billion): • Down payment to restoring prosperity • Active Labor Market Policies: • Federal workforce training programs • Continued investments in training “green” workforce • New transitional jobs and career pathway programs • Adds to recovery act investments in YouthBuild • Job training for ex-offenders returning to their communities • Makes commitment to returning service men • Passive Labor Market Policies: • UI System Reform • Improve UI as an automatic stabilizer • Improve the systems fiscal integrity • Other Policy Responses: • Restore labor standards and enforcement (180 worker protection laws, such as OSHA) • Establishes automatic workplace pension • Makes the saver's credit refundable

6. Should Congress and the Administration invest more in “Active” labor market policy? • US Expenditures on Active Labor Market Policy • We severely lag OECD countries in all categories: training, employment incentives, supported employment and rehabilitation, direct job creation, and start-up incentives. • Macro Indicators • Unemployment rate is forecast to rise well into next year. Many forecast increases beyond 10 percent. • Some are predicting another jobless recovery. GDP growth with none or little job creation. • Labor Market Indicators • Long-term unemployment has surpassed the record high during the 1981-82 recession. 1 in 4 unemployed Americans have been out of work for at least 27 weeks. • America’s untapped and underutilized pools of potential exceed 24 million, with almost 9 million working part-time for economic reasons. • Men, especially African American men are bearing the brunt of the recession. • The teen unemployment rate almost exceeds 22%, even higher for African American teens. • Michigan’s unemployment rate exceeds 10 percent: up from 7.3% (December, 2007) to 12.6% (March, 2009) • Detroit’s unemployment rate has almost jumped from 7.4% (March 2007) to 14.0% (March 2009).

7. The answer depends on several issues. • Will the US recovery be much slower than OECD countries? • Stimulus #1 doesn’t generate desired economic growth and job creation. • A jobless recovery similar to the post 1991-92 and 2001 recessions occurs.

8. Long-term unemployment has trended upward. Given the economy’s health, it has reached the record high during the 1981-82 recession. Source: www.bls.gov. Figure for 2009 is average from January to April.

9. America’s Untapped Pools of Potential Tops 24 Million Source: Calculations from BLS data. Untapped is defined as the unemployed, part-time for economic reasons and marginally attached individuals.

10. What is the “Real” Unemployment Rate? Source: Table A-12 of BLS Employment Situation Press Releases. “Real” includes individuals that are out of the labor force, but if offered a job, they would take it, plus individuals that are working part-time for economic reasons.

11. Men, especially African American men have born the brunt of the recession. Source: www.bls.gov. Initial figures for Latinos are for April 2007.

12. During the recession, Michigan’s labor market has deteriorated faster than the US average. (Unemployment Rate) Source: www.bls.gov. .

13. The US severely lags OECD countries in labor market policy expenditures – 2006(% of GDP) Source: OECD.

14. The US lags OECD countries in all categories of active labor market policy expenditures – 2006(% of GDP) Source: OECD.

15. What would a new labor market stimulus look like? • More investment in education and training • In time of weak job creation, adding to ones human capital is a key strategy. • Job search assistance • In presence of limited job openings, helping connect employers to potential candidates takes on greater importance. • NEW: Economic and political pressures will provide stronger rationale for expanded targeted investments in direct job creation. • Demographic groups: youth, less educated and even prime-age workers • Geographic groups: Detroit and New York City are potential candidates

16. What ALMPs work best? • Auer, Efendioglu and Leschke, 2005 • Direct job creation not a favored policy tool by most OECD countries • Public works projects may be very appropriate economies with weak aggregate demand and high long-term unemployment • Targeted approaches yield better results than broad measures • Initiatives that are closer to real-work situations achieve better results • Decentralized services systems seem to generate better results • ALMPs may be useful political countermeasures to globalization. This can be extrapolated to the recession/economic downturns. • Card, Kluve and Weber, 2009 • Job search assistance programs: relatively favorable short-run impacts. • Classroom and on-the-job training programs: better outcomes in the medium than in the short-run. • Youth programs: less likely to yield positive impacts than untargeted programs.