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Wonkblog interviews AEI Resident Scholar Michael R. Strain
View related content: Labor Studies
Michael Strain is an economist and resident scholar at the American Enterprise Institute whose work focuses on long-term unemployment. Over the past year, he’s been publishing papers and writing in places like National Review and the Weekly Standard urging conservatives to focus much more heavily on the plight of millions of workers who have been out of work for more than six months. We talked by phone Tuesday.
Brad Plumer: Let’s start with an overview of the problem. How do you usually try to convey the long-term unemployment situation to people?
Michael Strain: I think it’s a challenge to convey it adequately. I often point to a simple chart of the long-term unemployed, the percentage of people unemployed for 27 weeks or longer, and that really stands out:
Currently we’re at about 4 million people [who are long-term unemployed]. That’s about 1 million more than the high in the previous recession, back in the 1980s. And we were up to 6.5 million during the Great Recession at its peak.
BP: This might be belaboring the obvious, but what are the main reasons why people should worry about this?
MS: First of all, just at a basic level, work is very important and a well-functioning labor market is very important — not only for the economic benefits of working. But if you have a bunch of people who want to work and can’t, that’s a lot of potential that’s sitting on the sidelines, and it’s bad for economic efficiency. Also, if people aren’t working, they’re more reliant on government welfare, taxes are higher.
And more important are the basic human issues. People derive so much of their identity and of their moral core from being able to work. It’s how people provide for their families, express creativity, gives you a sense of purpose. There are all these moral and spiritual and psychological benefits to working. So if you want to ask how society is doing broadly, certainly the economics are important, but more important is whether this society is functioning in a way that people can live the fullest life possible and can maximize their potential. And right now, for these 4 million folks, we’re failing.
BP: The other part of this argument is that long-term unemployment isn’t like regular employment. If you’re out of work for a long time, it actually becomes harder to get a job after awhile. What’s the evidence on this score?
MS: There’s the survey evidence, you can just ask businesses, if you have two candidates and one’s been unemployed for four weeks, and one’s been unemployed for 30, who would you hire? I think there’s a limit to what you can learn from acting.
There have also been résumé studies that have been really good, where people create fake résumés and send out pairs of résumés where the only difference is the length that each person has been employed. And sure enough, the longer a person’s been unemployed, the smaller the probability that people get called for an interview. So there’s some compelling evidence that “scarring” is actually happening.
BP: Now one of the recent debates in Congress was about whether to letemergency unemployment aid for millions of people expire this year. [The latest budget agreement doesn’t include an extension.] By and large, the push for an extension mainly came from Democrats, while many Republicans opposed it.
You’ve mentioned you’d be in favor of an extension. So how do you think about this debate?
MS: I think you have to look at this in context: We’ve had this emergency unemployment program in place since 2008 — that seems like a really long time. But you can also ask when we’ve cut off similar programs in the past, given things like the long-term unemployment rate. And if you do that, then you can see that we’re cutting it off earlier this time around:
That’s the crux of the issue. Things are much worse now than they have been in the past when we’ve terminated emergency benefits.
BP: One thing you hear from opponents of extending the jobless benefits for so long is that it deters people from finding work. How do you address that?
MS: I think it’s generally true that unemployment benefits do increase the amount of unemployment. But you would expect the effects to vary depending on whether the labor market was strong or weak. And if you look at the estimates during the Great Recession,they show a very small impact of unemployment insurance on unemployment. So the critique here overstates the degree to which this is a problem.
I would also say that extending the length of time that a person is unemployed isn’t always a bad thing. If the benefits allow people to be more selective with which jobs they take, and they end up with a better match, that will increase their productivity, their contributions to the economy are higher in the long run, the likelihood that they’ll quit or get fired later is smaller.
Plus there are households that face severe liquidity constraints, and unemployment insurance offers a way to mitigate that, too. So I would say that given the weak labor market, we shouldn’t be as concerned about unemployment insurance increasing the amount of unemployment as we normally would be. And the research backs that up.
BP: You’ve written before that if you look at the types of workers who actually make up the long-term unemployed, it’s hard to believe that they’re just refusing to find work to keep their benefits. What makes you say this?
MS: I was trying to find a way to illustrate the theory for people who aren’t technical experts. If you look at the long-term unemployed, a good chunk of them have children. A good chunk are married. A good chunk are college-educated or have had some college and in their prime earning years.
And it just seems to me — and, again, this is consistent with the research — that someone who has been unemployed for 30 or 35 or 40 weeks, and is in their prime earning years with kids and education. … It strikes me as implausible that this person is engaged in a half-hearted job search. Maybe if they’d been unemployed for five weeks, you can imagine that maybe they’re being too choosy, or maybe they’re just enjoying their time with their kids. But for there to be a significant number of long-term unemployed who aren’t engaged in a job search because of their unemployment checks … that just strikes me as implausible.
BP: You’ve also noted that extending the unemployment benefits can’t be theonly policy to help the long-term unemployed. So what are the other big ones?
MS: If I had to pick just one, I think relocation vouchers are a good idea. If you look at unemployment rates and other labor-market indicators, they really vary a lot from place to place. But moving is expensive. So I think if the government could help out some of these folks to move — just those who want to, certainly not forcing anyone — you can imagine them having an easier time getting a job.
BP: Would that really make a big difference? Are there estimates on this?
MS: There aren’t any compelling estimates that I’m aware of, and I think we could certainly debate the effectiveness of it. But there are 4 million long-term unemployed. If even 5 percent of them took this program and ended up working, that’s a good chunk of people.
BP: Are there other policies here that could help?
MS: Yeah, I’ve laid out quite a few suggestions before.
For instance, I think work-sharing is a promising policy, although it wouldn’t help the current long-term unemployed. This is basically a prorated unemployment benefit. Right now, if someone goes into the unemployment insurance office and says, “Hey, my hours got cut by 20 percent, I’d like a 20 percent benefit,” the office will say no. So while firms can cut the hours of their employees instead of laying people off, it’s an unattractive option because employees wouldn’t get compensated.
Work-sharing would allow these arrangements. We wouldn’t want to ban layoffs. But if there are firms who would rather not lay people off but feel like they have to because they’re in a state that doesn’t allow work-sharing … if we can give all firms a choice between work-sharing and layoffs, that could be a really positive innovation and could have an effect on unemployment.
BP: Also on your list is lowering the minimum wage for a particular set of the long-term unemployed. How would that work?
MS: A chunk of the long-term unemployed are high-school dropouts and are young workers. Lowering the minimum wage for those folks makes a lot of sense as an idea. It stands to reason that some of the long-term unemployed, particularly those who are low-skilled and pretty young would be more successful at getting jobs if firms could pay them less.
That might overcome some of the scarring effects. Say a worker looks pretty good on paper, but he’s been unemployed for 35 weeks. Employers might think, “Well, he’s been to other interviews before, maybe there’s a problem I missed, I’m not going to hire him.” And part of the reason is that the firm doesn’t want to take a $7.25 per hour risk on the worker. So it stands to reason if we kicked that down a few dollars, a firm might say, “Okay, I’ll take a $5-per-hour risk on this guy.”
Now if we did this, we’d want to expand the Earned Income Tax Credit or maybe give those workers direct wage subsidies in order to make sure that the workers aren’t in dire straits.
BP: You’ve also written about the link between transportation and unemployment. How does that work?
MS: So if you’re an unemployed person in Washington, D.C., you’re probably not going to apply for jobs in Baltimore. It takes too long to get there. Or if you live way out in Fredericksburg, it’s a real journey to get into downtown. So that restricts the number of jobs you can apply to. So if the government could improve those transportation networks — say run buses from low-income areas to employment centers — that increases the number of jobs workers can apply for. Or we could just pay for gas or for a bus fare or for a train ticket, and throw that on as a supplement to emergency unemployment.
BP: So if we enacted all of these ideas, what would the actual effect be?
MS: I don’t know the answer. But again, when you’re talking about 4 million people. If just 5 percent take up relocation voucher, that’s 200,000 people. So that’s something. If just 5 percent get hired because of a lower minimum wage, that’s another 200,000 people.
My point is that this is a big enough problem that these ideas are worth trying. They’re not going to be that expensive. And I think they’ll pay for themselves, because the long-term damage of having all these people who may never get a job again creates big losses.
Now it’s true that fundamentally what we need is broad-based economic growth, and that’s what’s really going to restore the labor market to health.
BP: Now you’re mainly writing for a conservative audience, but some of these ideas — improving transportation, work-sharing — sound like liberal ideas.
MS: Well, I don’t think you’d find many liberals who want to reduce the minimum wage or eliminate capital gains taxes on new business investments or significantly mitigate occupational licensing. When I was writing about this issue in the National Review in June, I was arguing that delaying the employer mandate could be one way to address the employment issue. Or permanently reducing the payroll tax and paying for it by increasing the Medicare eligibility age. Those aren’t really liberal ideas.
On the other hand, some of the other ideas for long-term unemployment could well be things that liberals would support. And I’d welcome that.
BP: But is there a specific argument that this should be a conservative cause?
MS: I think so. Conservatives have a vision of society that’s very dynamic, very fluid, characterized more by opportunities and less by equality of outcome. And I think many of the these support that.
And I wouldn’t want these to be emergency measures, I’d want them to stay in law for many years to come. We want people to have the ability to have the best match in the labor market as possible. So one classic barrier to that is geographic mobility, and relocation vouchers for the long-term unemployed can advance that conservative goal whether we’re talking about the Great Recession or not. So would better transportation options for low-income neighborhoods. Worksharing is another — it increases economic efficiency. You would want that 10 years from now.
BP: Have you seen many conservative politicians take up this cause?
MS: I’ve had conversations with folks on the Hill about some of these ideas. But it’s one thing to say an individual senator or member likes these ideas, and it’s another to put them into action. And certainly no one is out there saying I’ve got a bill I want to introduce. Then again, no one’s saying that in either party right now. Both parties are failing pretty badly.
BP: Why isn’t this a bigger Republican issue?
MS: There’s the aversion among Republicans to spending money. A lot of ideas to help long-term unemployment would cost money. And with the rise of a more libertarian Republican Party, there is an aversion by some to using government power to help people, although I wouldn’t want to overstate this. And the party has been very focused on Obamacare and debt and deficits.
I think the major problem we have right now with the economy is not deficits, it’s jobs. But that’s something that I think a lot of Republicans would not agree with right now.
BP: Anything else you want to add?
MS: The big thing I want people to take away is that this is a big economic and human crisis. The role of government is to help the most vulnerable in society, and helping the long-term unemployed should be at the top of that agenda. And anything we can do to help within reason should at least be discussed.
Interview has been lightly edited for length and clarity.
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