6 Ways to Get the Long-Term Unemployed Back to Work

Niraj Chokshi
April 25, 2013

It’s one of the most puzzling modern economic problems: how do you get those who have been long-term jobless back to work? Their share of the unemployed doubled in recent years and their numbers have remained stubbornly high. And, at a Wednesday hearing, lawmakers sought to explore what could be done about it.

Long-term unemployment is pernicious. It’s what Kevin Hassett, a former economic advisor to 2012 Republican presidential nominee Mitt Romney, dubbed a “national emergency” at Wednesday’s sparsely attended hearing. The longer it takes to find a job, the greater and more permanent the psychological and emotional toll. And just being out of work for a long time makes it harder to land a new job, as employers would rather fill positions with people who have more-recent experience.

It’s a complicated problem, but not one without solutions. Here are six ideas for how to tackle the problem:

Economic growth

It may seem like a cop-out, but the surest way to supply jobs to those out of work the longest is to improve the economy. A vibrant economy, means more hiring. Of course, how to fix the economy is the subject of a much broader fight over whether government spending should be increased or slashed to spur growth. However it’s achieved, a broad and strong economic rebound would be one of the most effective ways to reduce the number of long-term unemployed. “As bad as this problem is, it’s main cause is the extremely weak economic recovery,” Dr. Keith Hall, a senior research fellow at the Mercatus Center at George Mason University, testified at Wednesday’s hearing.

Tax incentives

One way to encourage reluctant employers to hire those who have been out of work the longest is to give them a tax incentive to do it. Something similar already exists. In January, President Obama signed into law an extension of the Returning Heroes Tax Credit, which included an up to $5,600 incentive for hiring veterans who have been out of work six months or longer. In his 2011 American Jobs Act, President Obama proposed a similar credit of up to $4,000 for employers who hire the long-term unemployed broadly.

Trial employment programs

Hiring someone, anyone, is a risk. A trial employment program can eliminate that risk by funding a short stint with a local employer for a jobless individual. If the employer likes the work, they can hire the person fulltime. One of the most frequently cited examples of this kind of program is Platform to Employment, a Connecticut pilot program that is expanding to ten cities nationwide. The idea was simple, according to the organization: “It began with a 5 week preparatory program designed to address the social, emotional and skill deficiencies caused by long term employment.” Once the training program ends, individuals are matched to local companies and their salaries were initially paid for by the program, which is funded through private investment. If the companies like the work, they can hire the individuals.

Randy Johnson, the executive director of Workforce Development, Inc., a Minnesota nonprofit that seeks to match the job-seekrs and employers, testified to that effect on Wednesday.

“As the economy recovers, we find more employers eager to add full-time, good paying jobs – but according to employers, the only good way to find out if the applicant has the skills they are looking for is to try them out in an internship, an apprenticeship or some other kind of on-the-job training experience,” Johnson said in his prepared testimony.

Wage insurance

Job searches are sometimes extended by the fact that job-seekers can’t find new work that pays as well. One idea that’s been kicked around for some time is to offer these individuals “wage insurance” to encourage them to take lesser-paying jobs and get them back into the labor force. President Obama proposed the idea for older workers last year, offering those 50 or older up to two years of such insurance if they take a job that pays less than $50,000. Gene Sperling, one of the president’s top economic advisors, explained the idea in detail in a 2005 article in Washington Monthly:

Under a basic 50-percent wage-insurance program, dislocated workers who find new work would receive 50 percent of the difference between their new wage and the wage in the job they lost if it paid more. If a worker took a one-third pay cut—say, from $30 to $20 an hour—wage insurance would bring their hourly earnings up to $25, recovering half of the $10 gap between their old and new pay.

This design empowers workers directly and encourages work. Wage insurance that replaced all of an individual's lost wages or kicked in before she found a new job could provide a disincentive to jump back into the workforce. But because the protection is triggered only when a worker finds a new job—and because the worker will always be better off with a higher wage—she will have a strong incentive to find both another job and the highest wage possible.

Direct hiring into government jobs

If the government wants to reduce the number of long-term unemployed, it could simply prioritize hiring them, as Hassett suggested. But it’s not clear that seeing the government hire more of the long-term unemployed would encourage the private sector to do the same, Dr. Harry Holzer, a professor at Georgetown University’s Public Policy Institute testified on Wednesday. “Giving them, I think, a public service job will not do much to lower the stigma in the eyes of employers,” he said. It’s better to encourage private employers to do the hiring instead through other means. Still, Holzer said, it’s worth trying all options “because the human cost of not doing it is so enormous right now.”

Focus on skills training and education

A downside to being out of work for too long is that skills erode. And a rapidly shifting economy means some jobs lost will never be recovered while new jobs are created in different industries. Skills training and education programs can help the long-term unemployed deal with tectonic labor-market shifts. “Good jobs with a solid future are growing,” Johnson said on Wednesday, “but they often require the jobseeker to take a risk and change careers. To lessen the risk, we have had great success in providing month-long pre-vocational ‘Career Academies’ for adults who are looking to move into Health Care, Advanced Manufacturing or Alternative Energy.”