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Rising Long-term Unemployment = Unskilled Workforce

Many Americans are unemployed, and many of them have been unemployed for a long time. The latest Bureau of Labor (BLS) statistics say that 44% of all unemployed people have been without a job for more than 27 weeks (the amount of time required to become classified as long-term unemployed) and the average length of unemployment is the highest it has been in at least 60 years (around 40 weeks.) All of this is bad because many economists suspect that skills can deteriorate if they remain unused. So, the unemployment problem is not just one about the number of people who don't have jobs, but the composition of that pool of people.

The Atlantic's Megan McArdle notices this problem and argues that even if we can't create more jobs, we can still distribute the number of jobs we do have in a better way to make sure that people who are unemployed for long periods of time get jobs before those who have been unemployed for only a short period of time, thus reducing the average time of unemployment and increasing the skill retention of the overall labor force.

Her proposed method of achieving this goal is to introduce a tax credit that lasts longer the longer a new hire had previously been unemployed. Thus, the longer you're unemployed the more attractive you look to an employer. This is smart.

Nonetheless, I have some adjustments, criticisms, and questions about this idea.

First, we do not have very good data about the curve of skill loss due to unemployment, and this is a problem for two reasons. A majority of people have been unemployed for more than 15 weeks (about 57%) and if skill deterioration sets in with a vengeance at ten weeks, then any policy like McArdle's will be too late. Also, it seems that a policy like McArdle's should not make a tax credit proportional to length of unemployment, because it makes hiring those who are unemployed for the longest time the most attractive (all else equal) which is bad because they are the most likely to have lost their skills and were some of the first people laid off, meaning this isn't the group of people we want to be putting back to work ahead of others.

As a solution, the credit could grow as a worker approached the unemployment duration where the rate of skill deterioration became highest and then trail off as the length of unemployment grew. If we found out that skill deterioration accelerated at 10 weeks of unemployment, then the credit could be small for those who are unemployed for only three weeks, grow until 10 weeks and then decrease again as the amount of skill loss that could be prevented went down. Again, all this assumes that we have some idea about the speed with which skills decay.

A bigger problem is that those who are unemployed for longer periods of time are more likely to be those who just aren't good workers for whatever reason, and giving credit for hiring these people may lead to our society performing less efficiently. It would be, in effect, incentivizing companies to draw from the B-team of potential hires.

Lastly – and this relates more to young people – a tax credit to hire people who've been unemployed for a long time would help many young people get hired, which would be good for them, but since they don't have many skills to begin with, it may not achieve the goal of trying to keep the work force's overall skill level from declining. 

Photo Credit: Wikimedia Commons

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