What economists get wrong about the jobs crisis

Government must take a multi-pronged approach to solve our unemployment woes

By Cathy Harding

Published May 22, 2013 8:42PM (EDT)

This originally appeared on Next New Deal.

Next New Deal On June 4th, the Roosevelt Institute will bring together leading thinkers, activists, and policymakers for A Bold Approach to the Jobs Emergency: Setting the Political Agenda for 2014 and 2016, a daylong conference in Washington, D.C. that will focus on America's desperate need for more and better jobs. Recently, Cathy Harding, Roosevelt's VP of Operations and Communications, sat down with Jeff Madrick, Roosevelt Institute Senior Fellow and Director of the Rediscovering Government initiative, to discuss his goals for the conference and his thoughts on what we can and must do to address the ongoing jobs crisis.

Cathy Harding: At the upcoming Rediscovering Government conference titled “A Bold Approach to the Jobs Emergency,” you’re going to make the case that solving the jobs emergency requires a comprehensive approach. Is that a new perspective on job creation? In other words, what needs to be included as part of a meaningful response that has not be included before?

Jeff Madrick: I think it basically is a new approach. I think people have their one or two favorites. Mainstream economists almost solely talk about education; in fact, there is a quote from Claudia Goldin and Larry Katz of Harvard in a Mike Milken Institute publication that says, yes things like minimum wage and unionization may matter, but they really don’t matter very much. It’s almost all education, or Raghuram Rajan, who is a well-known Chicago economist, says the big problem is education. I think even left-wing economists will say the big problem is education. In my view it is one of many problems.

There are bills out there that are moderately comprehensive, like Tom Harkin’s bill, and he’s going talk about that.

Minimum wage contributes too, and de-unionization contributes to it. I think the lack of enforcement of the employment laws contributes to it, which has been serious.

We don’t pay any attention to job training programs in a serious way, aside from college education.

I think there are issues about health insurance that have to be talked about; there are issues about Wall Street, in particular, that are almost totally ignored by Washington, D.C. Wall Street’s impact on suppressing good jobs has been very serious, and it’s not part of any of these bills. So I think all of these matter.

And finally, government investment in infrastructure and new technologies are job creators.

CH: What happens if you don’t approach the jobs crisis across many planes?

JM: We are going to continue to generate fewer jobs than we should, and we won’t generate enough jobs that pay well. That’s a big deal. We are already in a very serious hole merely on the number of jobs, but the quality of jobs, in terms of wages they pay, and in terms of benefits like retirement and health insurance, is stunningly bad.

CH: So you are saying that without a multi-pronged approach to the jobs issue, it is just going to get worse?

JM: I think, yeah. I think if we listen to what most economists tell us to do, we would be a very sad country.

CH: So, Jeff, when we read reports that say unemployment is going down, and that jobs are being created, what questions should people be asking about those numbers?

JM: Long-term unemployment, that is, people who can’t get jobs for 6 months or more, is very high. It has been setting records for a long time now. So yes, there is a slight improvement in the unemployment rate, but it is not nearly enough. What are the reasons for that? Part of it is slow economic growth in itself. Why do we have slow economic growth? Probably the single most important reason, but not only reason, is high levels of debt that are held over from the mortgage boom. So slow growth contributes to that lack of rapid job creation, but so do these other factors, including Wall Street and pressure on wages by business. Some of it generated by Wall Street needs and stock market needs, some of it generated by globalization and the ability to go somewhere else.

CH: So you are not cheered when you see a report that says the unemployment rate is down to 7.5 percent?

JM: All of it has to be in context. I think it suggests, given that the government is taking money out of the economy through this now famous sequestration process, that the economy is stronger than we thought it might be. If only they would get out of the way, we would probably be creating a lot more jobs, but they are not getting out of the way. So that is another issue we have to deal with. So I am cheered that the job situation in the latest reporting month was better than most people thought, given that the government is stepping on the breaks and we are still moving.

CH: You talked about it not just being a matter of jobs, but the question of good jobs. The students involved in Roosevelt Institute | Campus Network through their Government By and For Millennial America report have identified that quality of jobs as being a very important issue for the country as a whole, and their generation. Can you specify what a bold approach might look like, specifically for the generation just coming onto the job market?

JM: Young people are getting the tail end of what is a pretty crummy job market for almost everybody. So to tailor a jobs program for the very young probably requires a variety of different types of policies. Still, going to college enables you to at least get a job, even if it is not a good job. A lot of people who go to college have to take jobs where you don’t really need a college education. So is there a simple answer – go get a college education? It is a negative answer. Don’t not get a college education.

We may have to tailor jobs programs run by the government to hire young people. It may come to that. We might need job-hiring programs by the government in the end. And we can’t neglect that idea, or keep it out of sight because we haven’t done for so long, or because “it is not the private market.” The big crisis is for the young people.

If you get a bad- or lower-paying job at 25, it probably affects your earning power for the rest of your life. So it is a pretty serious issue.

CH: You have written a lot about what you call “the age of greed.” Is there is a cultural aspect to this current jobs crisis?

JM: I haven’t thought about that sufficiently. I think there is now too easy an acceptance that people won’t get good jobs and that the future may not be very good. That’s rather a new thing in America. One of my favorite stories is from Fernand Braudel, the historian, who says, way back who knows when, a Frenchman wrote a letter from Wyoming or somewhere like that. He said, “You can’t believe what they are doing in this town. They are building City Hall a mile from where we all live, and where the town center now is. Why? Because they’re so optimistic the town is going to grow so much that will be the new center.” I don’t think we have much of that kind of optimism. Ironically, the great so-called optimistic president, Ronald Reagan, in my view, was the guy who made us all pessimists -- that we can’t rely on government to make things better and that all we have to do is have good thoughts and things will get better on their own. So now that I think about it and you brought it up, I think there is a pessimism that’s taking root in our society that is very dangerous. I don’t think if you talk to people who are 35 now and have children that they are extremely optimistic about prospects for their children.

CH: The closing panel at the jobs conference will address momentum building. What can people expect to take away from that?

JM: I think that most of us don’t think that a jobs conference or a well-written jobs proposal is immediately going to result in action. I think we have to win people over with argument, and persuasion, and facts, and a sense of what is really at stake here. And I think that’s what building momentum is about. One can say, “Win over one person at a time, and then eventually you get a movement.” It is something like that. And I think that is what Rediscovering Government is going have to be dedicated to. We are not going go down there and change the world on June 4th, but we want to lay the groundwork for fighting the ongoing battle. And indeed, laying the groundwork and setting the political agenda for the elections of 2014, and especially 2016. We want to influence elections. We want a job-creating President and a job-creating Congress.

Cathy Harding

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Government Jobs Next New Deal Unemployment U.s. Economy Wall Street