How Not to Solve the Jobs Problem

There is a lot of circumstantial evidence that President Obama is planning to include in his eagerly anticipated post-Labor Day jobs speech a variation on a truly lame state program called Georgia Works.

The program, begun in 2003, pays people on unemployment insurance a small additional stipend, currently $240, if they agree to work 24 hours a week, for no wages, for a private employer while unemployed, in exchange for some form of training by the employer.

The program was actually started by a Democratic state labor commissioner, Mike Thurmond, and continued by his Republican successor. Thurmond went on to run as the Democratic nominee for the Senate in 2010, and lose. Former President Bill Clinton is a big booster of the program, and Obama gave it favorable mention at one of his recent town hall meetings in Iowa: The president said:

"We’ve got to rethink how we do unemployment insurance. There is a smart program in Georgia. What they do is they say, all right, instead of you just getting unemployment insurance, just a check, what we’re going to do is we will give a subsidy to any company that hires you with your unemployment insurance so that you’re essentially earning a salary and getting your foot in the door into that company. And if they hire you full-time, then the unemployment insurance is used to subsidize you getting trained and getting a job."

But that’s not how the program works at all. Basically, the company gets free labor while the person is receiving unemployment insurance. If the company does hire the person, there is no ongoing wage subsidy or training subsidy.

According to data from the Georgia Department of Labor provided to the Huffington Post, just 16.4 percent of workers who participated in this program between 2003 when the program started and 2010 got hired by the company where they were placed, and only 24 percent got jobs at all. Currently, exactly 19 people are enrolled.

Obama’s characterization sounds more like Danish or Swedish active labor market policy, where government subsidizes serious retraining and then subsidizes wages. But the Georgia program, now run by a very right-wing Republican state administration, is a far cry from that.

Georgia’s top weekly benefit is just $330.

With unemployment stubbornly above 9 percent, and above 15 percent if you count discouraged workers and part-timers seeking full-time work, this program doesn’t make a dent in the problem. It doesn’t create jobs. It simply alters who gets available jobs, while putting downward pressure on wages. As Obama’s suggests, Smith gets his foot in the door ahead of Jones, by offering to work for free.

Why would Obama be interested in such weak tea?

First, there is no additional cost to government.

Second, it has a nice corporate, free-market flavor.

Third, it appeals to Republicans. Obama is fearful that Republicans may block the next extension of unemployment insurance, and this Republican-style embellishment might be part of a bipartisan deal.

But tiny policy changes like this move employment policy in the wrong direction by pretending that a massive jobs problem is amenable to trivial fixes. And it worsens the related problem of a lack of good jobs by putting downward pressure on wages by adding free labor to the local worker pool. Moreover, to the extent that a better-trained workforce is part (and only part) of the solution, temporary ad hoc training in exchange for free labor is pure tokenism.

Even if the administration kids itself into thinking that this is smart policy, a political reality check should give the White House pause. How many voters, really, will this impress? What will it do to the actual plague of unemployment?

As it happens, Obama has just hired as his new chair of the Council of Economic Advisers one of our premier labor economists, Alan Krueger of Princeton University. Krueger came to prominence in 1995 as co-author of an academic study defending minimum wages. Krueger is not making public comments, since he still has to get confirmed. But he should be privately advising the president that sending out jobless Americans on meager unemployment compensation stipends to work for free is no solution to the crisis of mass unemployment.

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