America’s labor market isn’t getting better, and it is hardest on people who haven’t worked in a long time. The Economist reports:
AMERICA’S great labour market slump continues to cast its pall over the economy, leaving one lonely group in particular shrouded in shadows. Over 6m Americans, more than 40% of all those unemployed, have now been out of work for more than six months. Most of these, 4.5m, haven’t worked for a year or more. This crisis of long-term joblessness is unprecedented in the post-war period.
Lacklustre growth is the main problem. The pace of new hiring crashed during the recession and has scarcely recovered since. Although America’s unemployment rate is down a percentage point from its peak, this is little cause for cheer. Workers are escaping unemployment more slowly than at any time since 1948. The long-term unemployed are struggling most; in the year to June, the newly jobless were three times more likely to find new work in a given month than the long-term unemployed. Many of the latter have given up hope. For the first time in decades, jobless workers are more likely to drop out of the labour force (and cease to be counted as unemployed) than to get a job (see chart). Bit by bit, a large mass of American workers is losing touch with the labour market.
The article suggests that the crisis of unemployment might be solved through more stimulus or the American Jobs Act. It also suggests that the President’s support of state-based programs like Georgia Work$ could “light the path back to work for many jobless Americans.” Maybe, but the government’s New Deal instincts have worked even less well in 2011 than they did in 1933. (It was World War Two, not the New Deal, that ended the Depression.) Even Georgia Work$ participants have been no more successful at finding employment than Georgia’s average unemployed worker.
The federal government’s attempts at stimulus were poorly planned. “Shovel-ready” used to actually mean “shovel-ready” — today it means that a local government has approved a project and will move forward with it as soon as it can placate the zoning and environmental regulators, which may take anywhere from months to years. By the time the projects reach the unemployed individuals that they were meant to help, many of the unemployed will have dropped out of the workforce entirely. (It is also likely that the recession will be over before some of the ‘shovel ready’ projects are actually under way.) Also, a host of additional regulations and requirements make it difficult and expensive for private firms to bid for these contracts — and the mandate to pay workers ‘prevailing’ (that is, union) wages means much more red tape and that fewer jobs are created per billion dollars spent.
Small businesses and start ups are where most jobs are created. Reducing the regulatory and paperwork burdens on small companies and new start ups would help. Career politicians, journalists and academics often have no idea how a host of seemingly small and benign regulations, each looking on its own like a commendable and even cost effective way to address a real problem, congeal into a mass of job killing, initiative-deadening obstacles that raise start up costs and throttle new enterprise.
Cities have historically been hives of initiative and new enterprise, but in the regulation dense thicket of modern American urban life, few jobs can grow. The nation’s major cities — where so many of our poorest communities with the highest rates of long term unemployment are found — were often shedding rather than creating jobs even before the recession. The Empire State Building, then the largest in the world and still an icon of design and serviceability around the world, was built in 13 months at the start of the Depression. It has taken the coop in which I live longer than that simply to find out from the city whether we can use a certain method to replace broken gutters along the side of my building. (We are still trying to find out. So is the company that wants to do the work.)
Like an elderly patient on so many medications that drug interactions cause additional problems, the American economy today is prostrate before the combined effects of a cyclical downturn in the traditional credit cycle and the unintended consequences and interactions of layer after layer of well intended but poorly designed progressive reforms and protections. Too many doctors have prescribed too many drugs for too long.
The cure does not lie in cutting off all the drugs, but neither does it lie in prescribing still more. This country is in desperate need of a major regulatory overhaul; every layer of government needs to go through its shelves of statutes and regulations with the goal of pruning back everything that makes it harder for ordinary people to do ordinary things — including starting small businesses.
Every regulation has its friends; the handicapped lobby wants every bathroom in every day care center in America to have handicapped access facilities — a worthy goal, but the sort of thing that helps make day care unaffordable, and in combination with many other regulations (all lovely and well intentioned) prevents unemployed people without a lot of capital or skills from making a living in hard times by taking in their neighbors’ kids.
Special interests, many quite noble and others masking commercial goals with idealistic slogans, have created regulatory thickets over the decades and these thickets are suppressing the initiative and the drive that made America great. It is time to whip out the pruning shears; otherwise our rates of structural and long term unemployment will gradually and inexorably rise.
US infrastructure could use some work, and if significant infrastructure spending was linked to a credible and real plan to reduce federal spending over the long term, front loading necessary infrastructure work to give people jobs when they are hurting makes sense.