Job Insurance – Part 11 (For the Young)

In Economic Planning, Economics, Financial Crisis, Full Employment, History and Politics, New Deal, Politics of Policy, Poverty, Public Policy, Public Sector, Public Works, Social Democracy, Social Policy, Welfare State, WPA, Youth Policy on November 9, 2009 at 8:23 pm

Introduction:

Peter Coy’s article, “The Lost Generation – Bright, Eager, and Unwanted” drew much-needed attention to the disastrous impact of the current recession on the young. Unemployment rates for those under 24 are nearly twice the national average, and the trajectory for youth employment is not heartening. As young people, many of whom have sunk themselves deep into debt for college educations that were sold to them as tickets into the middle class, face years of empty spaces on their resumes and lost wage income and promotions they will begin to fall further and further back from their potential and become a truly lost generation.

Something needs to be done to save a generation from a blighted economic life, and to recover untold amounts of potential labor power that will go unused in the interim. Luckily, history gives us a perfect example of how to save this generation in the youth policies of the New Deal.

The Civilian Conservation Corps and the National Youth Administration – Learning the Right Lessons:

When pundits today talk about how to deal with the plight of young workers drowning in today’s labor market, they often bring up the Civilian Conservation Corps as an example of how to tackle the crisis. The CCC is a favorite New Deal program for pundits because it brings up a whole host of romantic associations – the great outdoors and the positive environmental policy associated with reforestation and anti-erosion work, shirtless young men swinging pick-axes, the military discipline instilled by the U.S Army, which managed the CCC’s 250,000 strong workforce (the CCC would serve about 3 million young men in its 10 year operation), and so on.

The problem is that people’s romanticism gets in the way – they can’t see the workers for the trees, as it were. Because they focus on the moral virtue of physical labor in a wilderness environment, they de-emphasize what should be the point: the CCC was supposed to take young people out of an overcrowded labor market (just as Social Security was supposed to take old people out of the labor market) and give them work. When LBJ tried to replicate the program in the Great Society through his Jobs Corps which was supposed to “save” young people from the negative environment of their neighborhoods that had created a “culture of poverty” by setting up job training camps in rural and wilderness areas, it was something of a disaster. Only 10,000 openings were created (versus 300,000 applicants), the program offered job training as opposed to real jobs, and city kids hated the rural camps. As a result, about 2/3rds of enrollees dropped out, and the program showed no positive effects on wages.

It’s not enough to dump young people in the forest, hand them a pickaxe and a minimum wage, and trust in the healing power of nature.

This is why I think the National Youth Administration is actually a superior model for our current problem. Designed as an adjunct to the Works Progress Administration, the NYA employed 500,000 young people at a time (the CCC peaked at 500,000, and usually employed about 250,000), and helped far more young people than the CCC (4.7 million over nine years versus 3 million over ten). The NYA especially understood the need for a flexible approach to work with a diverse population – the NYA included both part-time work-study jobs for students (all the way from high school to graduate school) with full-time jobs for young workers that provided on-the-job training in a number of professions. Unlike the CCC, which was restricted to young men, the NYA provided assistance to men and women. The point here is that the NYA treated young people as workers and students who needed help, not as a moral problem to be solved.

Thus, as we move forward in adapting the New Deal’s solutions to our own times, we must resist our romantic impulses and treat young people seriously. We are not out to “rescue” lost children, and we are not trying to instill a rugged outdoors spirit. What we need is to construct a social insurance system for the young that parallels the Social Security system for the old; just as Social Security helps to ensure that the elderly can retire with dignity and security, a system is needed to help young workers “launch” themselves into their adult lives with some kind of economic security and protection against their own particular risks (high debt levels, lack of built-up assets that could protect them in sudden down-turns, etc.). In short, we need to recognize that youth policy has to be about more than just education.

Job Insurance For the Young:

Currently, the unemployment rate for young people between 16-24 is about 18%. Given that many young people in that age group are still in school (only about 52% of people aged 16-24 were in the workforce prior to the recession), what we’re really looking at here is a decline in employment of 6 percentage points, or roughly 2.25 million jobs lost or never created.

In order to get back to pre-recession levels, we need to re-create those 2.25 million jobs. In my series on Job Insurance, I’ve laid out the mechanisms for creating a large number of jobs, and what kind of resources we need to make a jobs program work. In some respects, creating a job insurance program for the young is easier than for their older peers. Because younger workers are less likely to have dependents,  the poverty line that you need to clear is much lower. Similarly, since many younger workers need part-time jobs to help them pay their way through college as opposed to full-time jobs, that also brings down the cost of employment.

In the past, I’ve assumed that, at $24k a year, plus FICA contributions and 30% non-labor costs, it costs about $36-40 billion dollars per million jobs created. Given an average of $15k a year for a Youth Job Insurance job (averaging out part-time and full-time and a lower poverty line bar), a million jobs for the young should only cost $22 billion. A comprehensive 2.25 million youth jobs package, which would bring youth employment rates back to their pre-recession levels, would cost a shade under $50 billion. At such a low price tag and a very high number of definite jobs created, a jobs program for the young should be a winning candidate for a second round of economic stimulus.

If established as a social insurance program, a modest $10/month premium from all 16-24 year olds would result in $4.5 billion in yearly revenues. After 5 years, such a program could build up reserves of $22.5 billion, enough to create a million jobs without additional funding from Congress, or two million jobs with a simple 50/50 split between the Youth Job Insurance fund and Congress, which should be enough to compensate for a severe recession like the current recession.

Conclusion:

The question might be asked, why not try some of the other options suggested in Peter Coy’s article, like a lower minimum wage for the young, or job training?

To begin with, lowering the minimum wage for the young is a bad idea. It does enormous damage to people who are already trying to hold on to their jobs amid declining hours and stagnant wages, including the 46% of 16-24 year olds who are working right now, by creating a huge incentive for employers to fire their existing workers and replace them with cheaper, younger alternatives. We already have 13 job applicants for every job opening; why increase that number? Furthermore, given that the current minimum wage of $7.25 an hour is just barely enough to keep a single adult out of poverty, if you can get and keep 40 hours a week, cutting the minimum wage for young workers will result in a mass of working poor, which is hardly an improvement.

Job training is part of the problem, not part of the solution. Our labor market policy towards the young has been entirely directed at labor supply – pushing college as a way to become a skilled worker who is more attractive to employers. In the current circumstances, we’ve got many more skilled workers than there is demand on the part of employers. Without doing something to increase labor demand, job training will continue to be a runaround.

If we’re going to save the young, it’s got to be jobs, not jobs-light.

  1. You’re on the right track, but it should be much more comprehensive – a job at a fixed wage for anyone who shows up, and don’t worry about “paying for it”. The whole point of the program should be to act as a “buffer stock” of employed workers, which would act both to eliminate unemployment and stabilize economic output and prices. The post-Keynesians have done the best work on this. here’s Randall Wray:

    http://neweconomicperspectives.blogspot.com/2009/08/how-to-implement-true-full-employment.html

    • For the more comprehensive stuff, check out the earlier parts in the series. The overall point of Job Insurance is essentially go establish democratic control over the unemployment rate and provide employment through the “right to a job.” I’ve read a lot of Randall Wray, he’s one of my main influences.

      The reason why in the Job Insurance series I focus on a contributory system is politics, not policy. One of the lessons we can learn from the history of social policy in America is that contributory systems are much stronger politically than non-contributory systems. They’ve got more independence from the normal budget process, because of their separate finance stream; this also means they are less vulnerable to sudden shocks in general revenue. On a different level, people claiming benefits under a contributory system are widely perceived as “worthy” of public assistance, even if their contributions aren’t nearly as large as their benefits – seniors claiming Social Security are viewed as having “earned” their pension by contributing to the system, by working most of their life, and so on.

      The idea of Job Insurance is to do the same thing for direct job creation. It is politically much more difficult to attack the unemployed claiming benefit if they have paid their premiums when they were working, and even more so when the benefit is them asking for a job instead of a state pension – it taps straight into the political culture of work in America.

  2. […] youth jobs program, as discussed here, could create jobs at about $22 billion for every million jobs created. An adult jobs program, that […]

  3. […] my segment on jobs for youth, a commenter asked why people in need of work should have to pay a premium to be eligible. This is […]

  4. […] ensuring that as many young people as possible find well-paid skilled work.  At the same time, a permanent youth jobs program would be invaluable in helping young people navigate their entry into the labor market and ensure a […]

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