Research Programs

Employment Policy and Labor Markets

Employment Policy and Labor Markets

In 2001, the US economy entered a seventh consecutive year of expansion and unemployment rates were at 30-year lows. Yet, not all shared in the employment boom. Levy Institute research has found that between 1995 and 1999, only 217,000 jobs—of the more than 13 million created—went to the half of the population holding a high school degree or less; the remaining jobs went to those with at least some college education. Today, in an ever-tightening economy, there are almost nine million unemployed—5.6 percent of the labor force—and four job seekers for each available job. In addition, there are roughly 10 million full-time workers whose wages place them at or below the official poverty line. Clearly, there is room for improvement on the jobs front.

In response to this problem, Levy Institute scholars have proposed a full-employment, or job opportunity, program that would employ all who are willing to work and increase flexibility between economic sectors, thereby lowering the social and economic costs of unemployment. This program is preferable to proposed alternatives such as a reduction of the workweek or employment subsidies, neither of which is sure to raise employment—and both may have serious side effects. Other labor market policies studied by Levy Institute scholars include the effects of technology on earnings, and the effects of an increase in the minimum wage on hiring practices and earnings.

Program Publications

  • In the Media | June 2016
    Bloomberg, June 7, 2016. All Rights Reserved.

    Research Associate Pavlina R. Tcherneva argues against a universal basic income policy and in favor of a job guarantee in this interview with Bloomberg’s Joe Weisenthal. Click here for the video.
  • Policy Note 2015/7 | November 2015
    Demographic Trends in US Labor Force Participation

    US labor force participation has continued to fall in the wake of the Great Recession. Improvements in the US unemployment rate reflect the fact that more people are falling out of the labor force, not a stronger labor market. Controlling for changes in the demographic makeup of the workforce (i.e., gender, age, education, and race), Research Scholar Fernando Rios-Avila investigates trends in labor force participation across and within groups between 1989 and 2013. He finds that not all groups have lost ground equally, while participation rates for some groups have actually increased. Understanding these patterns in labor force participation is a necessary first step toward crafting effective policy responses.

  • This addendum to our June 2014 report, “Responding to the Unemployment Challenge: A Job Guarantee Proposal for Greece,” updates labor market data through 2014Q3 and identifies emerging employment and unemployment trends. The overarching aim of the report, the outcome of a study undertaken in 2013 by the Levy Institute in collaboration with the Observatory of Economic and Social Developments of the Labour Institute of the Greek General Confederation of Labour, is to provide policymakers and the general public research-based evidence of the macroeconomic and employment effects of a large-scale direct job creation program in Greece, and to invite critical rethinking of the austerity-driven macro policy instituted in 2010 as a condition of the loans made to Greece by its eurozone partners. 

  • Public Policy Brief No. 138 | October 2014
    To mobilize Greece’s severely underemployed labor potential and confront the social and economic dangers of persistent unemployment, we propose the immediate implementation of a direct public benefit job creation program—a Greek “New Deal.” The Job Guarantee (JG) program would offer the unemployed jobs, at a minimum wage, on work projects providing public goods and services. This policy would have substantial positive economic impacts in terms of output and employment, and when newly accrued tax revenue is taken into account, which substantially reduces the net cost of the program, it makes for a comparatively modest fiscal stimulus. At a net cost of roughly 1 percent to 1.2 percent of GDP (depending on the wage level offered), a midrange JG program featuring the direct creation of 300,000 jobs has the potential to reduce the unemployed population by a third or more, once indirect employment effects are taken into account. And our research indicates that the policy would do all this while reducing Greece’s debt-to-GDP ratio—which leaves little room for excuses.

  • This report presents the findings from a study undertaken by the Levy Institute in 2013 in collaboration with the Observatory of Economic and Social Developments of the Labour Institute of the Greek General Confederation of Labour. It uses as background the 2011 Levy Institute study “Direct Job Creation for Turbulent Times in Greece,” which focused on the need for direct job creation to address rising unemployment. The focus in this report, however, is different. Here, the aim is to make available to policymakers and the broader public research-based evidence of the macroeconomic and employment effects of a large-scale program of direct job creation program—a cost-effective and proven policy response. The ultimate goal of this undertaking is to draw urgently needed attention to the worsening levels of unemployment in Greece, and to invite critical rethinking of the austerity-driven macro policy instituted in 2010.

  • In the Media | April 2014
    By Victoria MacGrane
    The Wall Street Journal, April 9, 2014. All Rights Reserved.

    Federal Reserve Governor Daniel Tarullo on Wednesday said policy makers should proceed cautiously in judging when inflationary pressures are building in the economy, given uncertainty that surrounds just how much slack remains in the labor market.

    Mr. Tarullo placed himself in the camp of Fed Chairwoman Janet Yellen, saying he believes the labor market is still operating well short of its potential and associating himself with her March 31 speech explaining the reasons why.

    Given there is some debate over how to measure labor market slack, “we are well advised to proceed pragmatically,” he said in a dinnertime speech prepared for delivery at a conference organized by the Levy Institute of Bard College.

    He stressed Fed officials should await actual evidence that labor markets had tightened enough to trigger inflationary pressures that could push inflation above the Fed’s 2% inflation target. The Commerce Department’s personal consumption expenditures price index, the Fed’s favored measure of inflation, was up 0.9% in February from a year earlier. The Labor Department’s consumer price index, an alternative measure, was up 1.1%.

    “But we should not rush to act preemptively in anticipation of such pressures based on arguments about the potential increase in structural unemployment in recent years,” he said.

    There is a vigorous debate at the central bank and among economists generally over the extent of remaining slack in the labor market. Minutes from the Fed’s March 18-19 policy meeting released Wednesday showed that while officials generally agreed slack persisted, they disagreed about how much and how well the unemployment rate reflects the degree of slack.

    In her March 31 speech, Ms. Yellen pointed to several factors beyond the jobless rate that suggest the labor market is still quite weak, including the large number of long-term jobless and the seven million Americans who are working part-time but would prefer full-time jobs.

    Mr. Tarullo suggested he’s not worried economic growth will suddenly take off and leave the Fed flat-footed and fighting rising inflation. “The issue of how much structural damage has been suffered by the labor market is of less immediate concern today in shaping monetary policy than it might have been had we experienced a period of rapid growth during the recovery,” he said.

    In light of the economy’s modest performance since the end of the recession, “it seems less likely that we will experience a growth spurt in the next couple of years that would engender concerns about rapid wage pressures and changes in inflation expectations,” Mr. Tarullo said.

    Mr. Tarullo’s comments came within the context of a speech raising concerns about “troubling” long-term trends in the U.S. economy, including falling productivity growth and rising inequality.

    The Fed’s efforts to battle recession help lay the groundwork for a stronger, more dynamic economy, Mr. Tarullo said. “But there are limits to what monetary policy can do in counteracting” the longer-term trends he is worried about.

    Mr. Tarullo said the federal government could address some of the challenges through investment, especially in ways that help “those who have seen their share of the economic pie shrink.” Early childhood education, job training programs, infrastructure and research are areas that could boost the long-term prospects for the U.S. economy, said Mr. Tarullo. 
  • Working Paper No. 789 | March 2014
    The Road Not Taken

    It is common knowledge that John Maynard Keynes advocated bold government action to deal with recessions and unemployment. What is not commonly known is that modern “Keynesian policies” bear little, if any, resemblance to the policy measures Keynes himself believed would guarantee true full employment over the long run. This paper corrects this misconception and outlines “the road not taken”; that is, the long-term program for full employment found in Keynes’s writings and elaborated on by others in works that are missing from mainstream textbooks and policy initiatives. The analysis herein focuses on why the private sector ordinarily fails to produce full employment, even during strong expansions and in the presence of strong government action. It articulates the reasons why the job of the policymaker is, not to “nudge” private firms to create jobs for all, but to do so itself directly as a matter of last resort. This paper discusses various designs of direct job creation policies that answer Keynes’s call for long-run full employment policies.

  • In the Media | January 2014
    Rania Antonopoulos
    Kathimerini, January 31, 2014. All Rights Reserved.

    The responses to unemployment by the last three governments [in Greece] have been characterized by sloppy proposals and an insignificant amount of funds in relation to the size of the problem. Regardless of whether there were political considerations behind it (or not), the recent announcement of the Prime Minister highlights, unfortunately, a relentless continuation of lack of understanding of reality.

    The Prime Minister recently, on January 29, told us that unemployment is a "sneaky enemy" and proceeded to announce measures to tackle the problem. He also indicated that "we do not promise things we cannot do, and we say no to populism and fine words." The goal of the proposed measures, we heard, is to create 440,000 "work opportunities" of which 240,000 will target the unemployed 15–24 years of age, with no prior work experience. The announced measures totaling 1.4 billion Euro, will be financed by funds from the National Strategic Reference Framework (NSRF), social funds from the EU, and are classified into three pillars.

    Specifically, the first pillar sets a target to recruit 114,000 unemployed for the private sector, an initiative that essentially subsidizes wages and social security contributions for businesses that hire unemployed who are up to 29 years old and some who are unemployed between the ages of 30 to 60 years of age. The second pillar concerns 240,000 young persons. This program will provide work experience and training for all unemployed up to 24 years old, who have no prior work experience. These unemployed, will also go to private companies for some time, or participate in vocational training centers (VTC) to improve their skills in order to find their first job, or both. The third pillar concentrates in hiring  90,000 unemployed from households who have no employed person, who will work in community service projects in the public sector and local government.

    Assuming that strict rules are in place, with dedicated control mechanisms that will guarantee nonreplacement of existing positions in the private and public sector (really, is there  a sufficient number of public sector inspectors for this task?), prima facie, it all sounds positive and leads to the conclusion that at last the Prime Minister himself has publicly accepted his responsibility towards the citizens that have been left without a job. But, appearances can be deceiving.

    Let's start with the obvious. If we divide the 1.4 billion euros with 440,000 job opportunities to be created in the next two years, we arrive at an average of 220,000, now unemployed, future employed per year, who will receive a total of 3,182 euros during one year. Namely, 265 euros per month. So these jobs offer underemployment, or starvation wages or both. Job opportunities? These interventions in reality provide employment for four to five months. Then what?

    But, also, there was nothing new proposed. The present government, on January 10, 2013 had presented us with a National Action Plan for Youth Employment.  The "Action Plan" consisted essentially of a compilation of already existing interventions, which, it should be noted, had already received miserably failing grades by ELIAMEP, through a study that they produced at the request of the National Bank of Greece. Mr. Samaras suggested the same and identical measures. If these “actions” have not worked in the past, why should we expect them to help now? This is important, because at this difficult hour it would be wise not to throw out the window EU funds. At the end, if the aim is to provide income support, let’s expand unemployment coverage, and not pretend we are creating jobs.

    But the essential problem is that the proposed action plan is based on the wrong diagnosis. First, its focus is on the young unemployed, and secondly, it mistakenly identifies the causes of youth unemployment in "employability"–namely, inthe absence of knowledge, experience, and seniority.

    Let's start with the second question first. The proposal carries a message that youth unemployment will fought through the acquisition and improvement of knowledge on the one hand (through VTC), and  practical experience in temporary jobs in private sector companies. Success should be evaluated by the ability of participants to find a permanent job after termination of participation in these programs. Do we then expect the young graduates to find a job? how many new jobs were announced in 2013? What has changed since 2008 is demand for labor due to the tremendous reduction of GDP and not the quality of the labor supply of young people. Unemployment has sky rocketed [from 7.7 to over 27%] due to austerity, lack of liquidity SMEs face, and the rapid, albeit legal, reduction of salaries and pensions. These are more or less commonly accepted facts. 2008 employees aged 15–24 included approximately 270,300 young aged workers, when in 2013 there were only 125,300 (a 145,000 reduction). Similarly, today the total number of unemployed people aged 15–24 is approximately 178,500—in 2008 there were 72,300 (an increase of 106,200). The numbers speak for themselves.

    Measures of "improving knowledge" will not do, not when our well-educated graduates migrate abroad massively.  These "solutions" are of European origin and are ineffective because the main problem we face is that the private sector has shrunk and this has produced a plummeting of demand of the existing workforce due to the depth and duration of the recession—the problem is not lack of quality and skills of the labor force.

    Let us now consider the first issue, the problem of youth unemployment. Indeed, the unemployment rate is very high among the youth and especially for 15–24 years, from 22.1% in 2008 to 57.2% today. But among the 1.3 billion unemployed (average of the first three quarter of 2013) the 1,186,000 are over 25 years old. According to the Hellenic Statistical Authority, all unemployed aged 15–24 amounted to 178,500. Recall that the second pillar consists of 240,000 unemployed young people aged up to 24 years! All the newcomers put together, among the 15–24 years of age, are less than 130.00. Even if we include new entrants ages 25–29, we reach 225,000 persons. The numbers are not consistent, at least not for the youth category of 15–24. Unless the same young person who participates one month in a training program and is then engaged in the private sector represents two “jobs.”

    The age targeted measures are ill conceived, as is the focus on employability. Most tragic of all is that long-term unemployed by now hits approximately 900,000 unemployed, of which 844,000 are not in the category of “youth.” Among them, 224,100 have been out of paid work for more than 48 months (4 years) and an additional 317.00 unemployed, for 24–47 months. For all these long-term unemployed, including those who have exhausted their resources and cannot pay even their electricity bill, for the 777, 000 unemployed who have a high school education level or lower, the announcement of Mr. Samaras highlights that there will be some lucky 200,000 young and more mature workers (440,000 minus 240, 000 people) that will be offered an “employment opportunity” for a few months out of a year in the private or public sector, receiving the meager earnings mentioned earlier.

    What must be urgently understood is that although the economy is now approaching the area of balancing the internal and external balance of payments and the pressure on further depressing the economy gradually slows down, this does not automatically lead to recovery. The economy can remain at frighteningly low production levels, high unemployment and income inequality of catastrophic dimensions. Recovery needs high and sustained private and public investment rates, and certainly gradual relief from the austerity measures. But let us remember that the decade before the crisis, with on average GDP growth about 4%, the economy created each year, on average, 55–60 thousand new jobs. Even if the growth rate returns to precrisis levels, at 4%, generating even 50–60 thousand new jobs per year, to reach the employment levels of 1998 to 2008 will be impossible in the near future; the figures for unemployment are so high, that the next decade will be 'lost', including for people sent to educational training centers.

    It is reasonable to ask, What can the poor government do when it has to deal with the Troika "requirements" of the one hand and the NSRF European Unon funds on the other, which are focused on these specific "actions"? Negotiate hard and convince their "partners" that the yardstick for introducing or maintaining conditionality measures, structural and otherwise, at this time is whether they increase unemployed or not; and  point out to other partners that these "actions" against unemployment are incompatible with the Greek reality—that the "Youth Guarantee" and the rest should be channeled to other types of interventions.

    The time has come to stop recycling the same distorted views. This crisis requires urgently a custom tailored Greek New Deal, which should last for at least the next three years. That is, the extension of a radically reorganized job guarantee program*, a community-based program of "koinofelis ergasia" not for five months but for 11 months per year, not for the 50,000–90,000 jobs for the unemployed but 440,000 real year-round jobs. As for what it will cost and where will we find the money, I reserve the right to provide relevant information next month through a study of the Levy Institute in cooperation with INE / GSEE [General Confederation of Trade Unions]. There is a solution, but it requires getting rid of current obsessions and to not follow the beaten track. Whether the political will of the current government to do so exists, is another matter.

    *The Levy Institute was instrumental in proposing a Job Guarantee policy for Greece, which was adopted by the Ministry of Labor in 2011, as a pilot program for 55,000 unemployed. It was rolled out in 2012 and was run through the NGO sector in collaboration with local and community governing bodies. For a background document that includes guidance notes on how best to design and implement such an initiative see