Jobs in the Developed World

Panel Overview and Context

• The "Jobs in the Developed World" panel features six economists and policy experts, three of whom attended Swarthmore College (a coincidence humorously linked by moderator Peter Passell to lower pay, ironically noting that the most successful forecasters often come from less prestigious institutions).
• The panel identifies a divergence between the U.S. economic recovery and historical norms: despite the recession ending four years prior, unemployment remains high, and the share of long-term unemployed has surged.
• European Union economies face chronic high unemployment, particularly among youth, exacerbated by the slow recovery of the Eurozone.
• In the U.S., the portion of long-term unemployed (over 26 weeks) rose to 45% at the peak of the 2010 recession and remains at 36%, a level not seen since World War II.
• Labor force participation rates have fallen to a 35-year low, with the 20-24 age demographic reaching a four-decade low.

Debate on the Causes of Unemployment

• Aggregate Demand vs. Structural Issues: Dean Baker argues the issue is purely demand-side, citing the collapse of the housing bubble ($8 trillion in lost equity) and the lack of fiscal stimulus to replace that demand.
• Rejection of Skills Mismatch: Baker disputes the "skills mismatch" theory, noting that vacancy rates have not fallen despite falling unemployment, and wages have not risen significantly in any large labor segment to indicate a shortage of workers.
• Historical Precedents: Bethann Bovino counters that the current recovery is an anomaly; unlike the previous five recessions, job growth is failing to catch up with GDP growth, and the duration of the recovery period is lengthening.
• Sticky Unemployment: Kevin Hassett highlights that after financial crises, unemployment typically remains double its pre-crisis low for a decade, driven by a class of "hard-to-employ" workers who suffer from atrophied skills and employer stigma against long-term unemployment (e.g., zero callbacks for resumes with >6 months of unemployment).
• Wage Stagnation: Kevin Hassett points to a "wage-less recovery" where inflation-adjusted wages have remained flat since 2009, suppressing consumer demand and preventing a return to middle-class employment.
• Sectoral Shifts: Steve Rattner notes that job growth is concentrated in low-wage sectors (food service, health care) and professions, while manufacturing has grown too slowly (only 590,000 jobs added) to offset early recession losses.
• Government Drag: Rattner identifies state and local government job cuts as a significant drag on overall employment numbers.

Policy Proposals and Responses

• Unemployment Insurance (UI):
  • Dean Baker argues against cutting benefits, citing research (Rothstein, Farber) that ending UI causes workers to stop looking for jobs rather than immediately accepting new ones.
  • Bethann Bovino supports UI extension on humanitarian grounds and as a demand-side stimulus, noting the high propensity to spend among unemployed recipients.
  • Kevin Hassett warns that current UI systems inadvertently subsidize long-term unemployment by creating a "cliff" where benefits end, creating a disincentive to accept marginal re-employment.
  • Kevin Hassett proposes replacing current UI with a system allowing workers to retain benefits if they take part-time or lower-wage work, though acknowledges political hurdles.
• Work-Sharing Programs:
  • Dean Baker and Kevin Hassett advocate for federal work-sharing laws (similar to Germany's Kurzarbeit) where firms reduce hours/wages for five workers instead of laying them off, with the government subsidizing the UI costs.
  • They note that while a federal incentive law passed, few states adopted the program due to lack of enforcement or funding.
• Youth and Education Reform:
  • Diana Farrell identifies a "parallel universe" gap between education systems, employers, and families, calling for better information, internships, and reduced stigma against vocational training.
  • Farrell suggests increasing labor mobility and addressing the high dropout rates in community colleges and universities to ensure skills alignment.
  • The panel notes the U.S. has the lowest labor mobility rate in history, preventing workers from moving to booming regions like North Dakota (4.3% unemployment).
• Immigration Reform:
  • Bethann Bovino argues for employment-based immigration, specifically high-skilled workers, predicting that adding 100 foreign workers with advanced degrees (especially in STEM) creates 262 additional American jobs through innovation and productivity.
  • Bovino projects that a reform focusing on skilled labor could add 3.2% growth to the real economy over the next decade (2015–2024) and help address the aging population (projected 20% over 65 by 2030).
  • Dean Baker remains agnostic, noting that domestic high-skilled wages have not risen, suggesting no actual labor shortage, and anecdotes exist of high-skilled workers willing to work for $14-$15/hour despite claims of scarcity.

Automation and Future Labor Markets

• Technological Optimism vs. Pessimism: The panel largely dismisses fears of mass job destruction via automation, citing historical data showing technology historically creates more jobs than it destroys.
• Productivity Data: Baker points out that productivity growth has actually been slow in recent years, contradicting theories that automation is accelerating rapidly enough to displace workers.
• The "Gig Economy": Bovino highlights the rise of platform-based work (e.g., Uber) as a near-term positive, offering flexible income opportunities and lowering barriers to entry for long-term unemployed workers.
• Structural Labor Changes: The panel acknowledges that the increasing prevalence of temporary work (46% increase) and the decoupling of benefits from employment require a shift toward portable benefits and alternative social safety nets.
• Work Hour Reduction: Baker suggests a counter to potential productivity gains from automation could be shortening the standard work week to spread available work among more people.
• Universal Basic Income (UBI): The conversation briefly touches on UBI as a potential solution if the labor market shifts fundamentally, though it is acknowledged as a subject for future debate.
• Forward-Looking Statement: Kevin Hassett warns that if the U.S. does not address the re-engagement of the long-term unemployed, the economy may face a permanently reduced productive capacity and higher inequality.