Pinched (22 page)

The 2009 stimulus included heavy funding for infrastructure, but that money is now largely spent. With much of the construction industry idled, materials costs low, and useful projects abundant, what better time to make further investments? Infrastructure is of course the backbone of any economy, and arguably, the free and rapid flow of people and goods becomes more important to sustaining growth as economies become more advanced. We need to renew our commitment not only to maintaining the infrastructure we have, but to building new infrastructure—a good investment regardless of the state of the economy.

Not all of this investment need come at taxpayer expense. Around the country, governments at every level are experimenting with innovative approaches to financing infrastructure investment—for
instance, by using public dollars to subsidize private investment, thus leveraging government funds. By pulling spending forward and partnering with private investors, the government can help create productive jobs now; and by raising our long-term commitment to infrastructure investment, we can sustain many of those jobs in the long run. Those jobs would be of exactly the sort that are attractive and attainable for many men without four-year college degrees, a group whose struggles the Great Recession has intensified.

Tax cuts and government spending won’t fix the various
structural
problems that afflict the economy. Simply juicing demand won’t magically turn factory workers into nurses any faster, nor will it turn laid-off high-school graduates into more-skilled college grads. These are real problems (more on this in a moment). But demand is the bigger problem in the short run. At an absolute minimum, we should not risk recovery by premature fiscal tightening.
And targeted expansion in some areas of the budget could hasten recovery and speed job growth. The Congressional Budget Office estimates that the initial stimulus saved perhaps 3 million full-time equivalent jobs and boosted output by perhaps 2 percent in the fourth quarter of 2010, though its impact was by then diminishing. Stimulus is expensive, no doubt, but, as the economist Adam Posen has written, it is effective when it’s tried.

The suppleness of the U.S. economy has long been a point of pride for Americans, and rightly so. Historically, few other countries have adapted as quickly or as well to the continual rise and fall of companies, industries, cities, and regions. The government has generally kept red tape to a minimum, allowing companies to hire and fire freely. And American workers have responded quickly to market incentives, moving readily from place to place and from industry
to industry. Americans’ nomadic tendencies—as to both place and career—have been a boon.

Reviving that nomadic spirit is essential to restoring economic health today. The housing bubble and everything that went along with it has left the economy badly distorted—with too many workers in construction and too many families in former real-estate boomtowns that can no longer sustain them. Yet rarely have so many Americans been stuck in place.

Economic woes are not distributed evenly across the country today; although unemployment is higher than usual just about everywhere, job opportunities vary widely from city to city and state to state. At the end of 2010, the unemployment rate was 14.9 percent in Las Vegas and 6.5 percent in Minneapolis. In February 2011,
the ratio of unemployed people to job vacancies was almost nine to one in Las Vegas and Miami; more than six to one in Detroit; and less than two to one in Baltimore, Hartford, Washington, DC, New York, and San Jose. Some of these disparities are likely to increase as general demand returns; places like Nevada, Florida, and Michigan are all suffering from the collapse of locally dominant industries that may not bounce all the way back. Yet since the recession began,
the rate of migration has fallen to its lowest level on record. In
a 2010 Rutgers University survey of the unemployed, two-thirds of respondents said they were unable to move to another city or town for a job. Immobility is likely to prolong the jobs recession and prevent a full recovery.

In fact, mobility has been declining for many years, and for many reasons (for one thing, the population is aging, and older people have deeper roots than young ones). But housing is surely one particularly important reason today. The rate of homeownership rose markedly in the aughts, and while widespread homeownership has some social benefits, it also makes moving more difficult and expensive. With the housing market now paralyzed by foreclosures and uncertainty, that problem has become severe. The rising prevalence of two-earner
families, perversely, has also left many people stuck in place. An employed spouse or partner has been a godsend to many people who’ve lost their job. But it has also made moving more risky, particularly in a tough economic climate. As a result, many families are staying put and scraping by in the most depressed places, keeping the unemployment rate elevated and the economy below its potential.

In the short run, the government should do everything it can to get the housing market running smoothly again, so that houses can change hands faster and their real value within each community can be more confidently established. That means policies that will help foreclosures clear more quickly, rather than delay them, and an end to policies that seek to keep people in houses they cannot afford. For the long run, we should reconsider whether the promotion and massive subsidization of homeownership—through mortgage-interest tax deductions and other measures—is doing the nation more harm than good. An end to policies that encourage homeownership over renting would restore some of the workforce flexibility that’s been lost, while also eliminating the incentive to overinvest in houses. And the gradual elimination of the mortgage-interest tax deduction would improve the budget outlook.

The Internet has made it much easier for people to identify potential job opportunities from afar. By and large, motivated people can see potential opportunities; they just can’t always reach them. A temporary relocation-assistance program could diminish the financial risk of moving and help cover the expense of getting set up in a new city or region, encouraging migration.
Under the Trade Adjustment Assistance Program, established in 1974, workers who’ve been displaced by the movement of jobs overseas are already eligible for reimbursement of some of the costs they incur while looking for work in other regions of the country; moving expenses are also covered. We should offer similar assistance to unemployed workers in badly depressed states or city-regions, to enable faster migration to more dynamic places.
As a lower-cost alternative to grants, the economists Jens Ludwig and Steven Raphael have suggested a program
of low-interest loans for relocation, payable only once work is found, in the same basic model as college loans.

Many unemployed people today aren’t just stuck in the wrong city or region; they’re stuck in shrinking industries or with obsolescent skills. Construction, for instance, is unlikely to return to its previous share of the economy, and many of the construction jobs that have been lost will never come back as a result. And across industries, many companies, having restructured operations during the recession, are looking for workers with different skills than the ones they laid off had.
In a 2010 survey by the National Association of Manufacturers, about one in three industrial companies reported moderate or serious skills shortages in the local workforce.

Since the crash, the government has provided expanded financial assistance for retraining. Retraining programs have a mixed history, but they can be effective when closely coordinated with the needs of local employers.
In some places, what employers need is a higher level of literacy and mathematical ability than is prevalent in the wage-earning population. (For instance, Ben Venue Laboratories, a drug maker located outside Cleveland, posted a hundred new job openings in 2010, at $13 to $15 an hour, but many of the 3,600 applicants could not read and do math at a ninth-grade level, as the jobs required; after several months, the company had hired only 47 people.) Basic training in generalizable skills should always be on offer.

Where jobs simply aren’t open, the immediate payoff of retraining will be limited. Nonetheless, by providing people with a new or broader set of skills, these programs enable faster absorption back into the workforce as demand rises. We should support that strongly.

Unavoidably,
many people who lost their job in the Great Recession will ultimately end up in jobs that don’t make full use of the particular skills they developed in their last job, and that pay much less, too (pay cuts of 20 or 30 percent are typical). That sort of reduction in pay and status can be extremely difficult, both financially and psychologically—so much so that some people hold out as long as
they possibly can in the hope, often vain, that they’ll find something closely equivalent to their old job. Beyond a certain point, that typically ends up being a bad decision; they would be better off jumping more quickly to a new job or new industry and starting the climb back up. The economy would be better off, too.

That’s one reason why
time limits on unemployment benefits are important when jobs are widely available. Incentives matter, and a large literature shows that lengthy unemployment benefits (and other welfare spending that is not tied to work) tend to lead to longer bouts of unemployment and lower levels of employment overall. Historically,
the comparatively short duration of unemployment benefits in the United States (the duration varies by state, but roughly six months has been typical in normal times), along with efforts to tie other forms of assistance to work, have advantaged the United States over many countries in Europe, for instance—keeping more people in the workforce, speeding economic adjustment, and diminishing the prevalence of chronic unemployment and its associated ills.

That said, these are not normal times, and while some unemployed Americans today are undoubtedly being too picky or simply trying to wait the recession out, as a practical matter it is impossible to distinguish them from the many others who simply cannot get full-time work of any sort, or of a kind that makes at least
some
use of truly valuable skills, knowledge, or abilities that they have developed. The temporary extension of unemployment benefits to up to ninety-nine weeks has been entirely warranted by economic conditions, and we should strongly consider a longer duration still, until unemployment rates come down meaningfully. For people who’ve been unemployed for more than, say, six months, we might add a requirement that they need to be engaged in either part-time work or some form of retraining, in an effort to keep them attached to the workforce.

So how can we nudge people toward making a jump to a different
job or career, even when that means a substantial loss in pay? One measure that deserves serious attention is a “wage insurance” program for middle- and working-class Americans—something that’s also already available to workers who’ve lost their jobs due to trade liberalization. Wage insurance kicks in when unemployed people find a new job that pays less than their old one, making up a part of the difference—say, half—for a couple of years. It makes downward mobility a little less jarring, and might be justified solely on those grounds. But it also provides a positive incentive for unemployed people to accept lower-paying jobs more quickly—allowing them to jump more easily to new careers or growing industries where they might ultimately have a brighter future, and moving the economy more quickly back toward full employment. (To further encourage timely jumps to new jobs, beyond a certain duration of unemployment, the portion of any wage difference that’s covered by wage insurance could be gradually reduced.)
Wage insurance wouldn’t be cheap—one 2007 estimate placed its costs at around $3.5 billion in a typical year—but it would help some people take new jobs more quickly, reducing unemployment benefits paid out and increasing income-tax revenues. And in a tumultuous economy where careers are less secure than they used to be—and where flexibility is more important than ever—it’s the sort of measure we should support both inside and outside of recession.

Finally, there is the special matter of the long-term unemployed. Many people who lost their job in the recession have already been unemployed for two years or more, and that number will swell further before recovery is complete. Especially for those with limited skills, finding work again will likely be very difficult. We should consider offering aggressive wage subsidies to employers who hire the long-term unemployed, making that hire extremely cheap for, say, a year before the subsidy is withdrawn. By providing a targeted and temporary incentive, we can help long-displaced workers shed the stigma that they have developed, rebuild skills and work habits,
and reenter mainstream society. Even workers who are not retained after the subsidy is removed will emerge with recent work history, reacquainted with the rhythms of the workplace.

It takes time for mid-career workers to acquire new skills, find new industries, and resettle in new places. But the measures outlined above would speed the structural changes that need to happen—helping workers, and helping the economy to recover its dynamism and resiliency. Along with an accommodating fiscal policy, they can help bring to an end the most-urgent problems that the recession has caused.

Still, in the longer term, we need to do more than merely pull ourselves out of the hole that the recession created. As technology and global integration continue to remake the U.S. economy, many of the best characteristics of American society—widespread opportunity, a broad middle class, exuberant growth that borders on the chaotic—are being threatened. The old foundations of our economy and culture are being eroded by powerful, global changes. We need new ones.

In 2010,
the McKinsey Global Institute released a report detailing just how mighty America’s multinational companies are—and how essential they have become to the U.S. economy. Multinationals employed 19 percent of the private-sector workforce in 2007, earned 25 percent of gross private-sector profits, and paid out 25 percent of all private-sector wages. They accounted for nearly three-quarters of the nation’s private-sector R&D spending. Since 1990, they’ve been responsible for 31 percent of the growth in real GDP.