One of the most important economic challenges we face is reducing long-term unemployment. Presently, the percentage of people who have been searching for a job for more than 26 weeks is 26.7 percent. That’s down from the peak of 45.5 percent during the Great Recession, but long-term unemployment has been stuck around this percentage for the last 10 months and it is still higher than the previous post World War II peak of 24.9 percent in the early 1980s.
Long-term unemployment takes a considerable toll on individuals and their families, and it has broader social and economic consequences as well. Yet Congress has all but ignored this problem. Republican opposition to new initiatives of any sort is one reason for the inaction from Congress, but it’s also true that we do not know for sure which type of policy works best. That makes it difficult for those in Congress who do favor action to make a strong case in support of a particular program.
There are three main approaches to reducing long-term unemployment, job search assistance, work retraining programs, and employment subsidies. However, the evidence on the effectiveness of these programs is mixed, and in some cases, the programs have negative effects (Card, et al (2010) and Kluve (2010) provide a detailed look at the effectiveness of these programs).
In addition, the reasons for the differences in effectiveness of various programs are not well understood. Financial incentives for job search have reduced long-term unemployment in the UK, but even when the programs are successful there is no guarantee that the success can be repeated at other times, in other places, or for different types of unemployment.
Given this uncertainty about the types of programs that work, politicians are reluctant to take a chance on endorsing a program that may be viewed later as a waste of taxpayer money. Thus, even without political gridlock standing in the way the tendency is to shy away from doing anything until we have better information on the how to attack the long-term unemployment problem. But how will we learn what works best if we don’t take advantage of what we do know, try new things, and then build upon the programs that are successful?
This brings up a more general problem with our willingness to try and solve important social problems. We seem to believe that every program the government tries must work with near perfection or it isn’t worth doing. If a social program helps a large number of people, but a few people take advantage of it, those people are used to undermine the program in the eyes of the public.
If we build a thousand bridges that serve important needs, but one of those is a “bridge to nowhere,” then infrastructure spending is a failure. If unemployment compensation and food stamps help a great number of people, but someone can be found who uses the programs as a way to avoid work, that becomes the focus. Of course we should try and fix the parts of any program that don’t work as intended, but we have to evaluate programs based upon their overall costs and benefits, not on isolated instances of failure.
The private sector would not meet the standard of perfection many people impose on the government. There are people in every organization who manage to keep taking home a paycheck while doing very little to earn it no matter how much oversight there is from management. There are employees who take supplies home, fudge business expense reports, and engage in all sorts of behaviors that benefit themselves at the expense of the company.
And there are usually a few customers who will find ways to exploit special offers or other programs a company offers. Businesses attempt to minimize this behavior, of course, but imperfections will always exist. It’s the overall profitability of the venture, not the fact that it is less than perfect, that matters to the firm.
The same is true of investments. Not every “bridge” that is built will be a success. A franchise, for example, will try new products, open outlets in new areas, and try all sorts of other things to overcome the challenges it faces. Some will work, others won’t. Too many failures will, of course, cause the company to go out of business, but the fact that some investments don’t pan out is not a reason to stop doing them altogether. Once again, it’s the overall costs and benefits that matter, not the fact that there will be failures along the way.
Our approach to solving problems such as the long-term unemployment problem should be the same. We should use what we know to try a variety of programs that show promise, perhaps through federal encouragement for individual states to experiment, and then follow up with an evaluation of their cost effectiveness. We should understand from the start that not every program will work – some will need to be shut down – and that some people will take advantage of the programs no matter how tightly they are structured to avoid such behavior.
If we want to meet the challenges we face as a nation, we cannot expect every program the government tries to be a success or be free of all waste and abuse. That will happen with government programs just as it does in the private sector. The important thing is to implement programs that have a good chance to work, and then learn from mistakes and build upon success so that we can address important problems such as long-term unemployment as effectively and efficiently as possible.