The Real Path to Lower Unemployment

Since releasing my critique of the proposed federal job guarantee last week, I’ve gotten a lot of questions along the lines of “How would you create jobs?” Offering an alternative plan is not a prerequisite for criticizing an idea that would be worse than the status quo, but the question is still of immense importance.

Many of my readers would respond with something like “Get government out of the way.” Absolutely. Markets are the best way to help the most people, but I’m not satisfied with that answer. People fall through the cracks of any system, including the freest of markets. Falling back on easy platitudes like “It’s better than socialism” doesn’t help anyone and plays into the hands of those who think that supporting free markets is incompatible with caring about people who are struggling.

That said, I don’t like the phrase “job creation.” It implies that there is a fixed stock of jobs in the economy and that addressing unemployment requires inventing new ways for people to get paid. Seeing how this logic breaks down is not difficult: just look at one of our most potent “job creators,” the Department of Defense.

Talk about cutting the Pentagon’s massive budget today and your main source of pushback is likely not to be bluster about America’s military strength, but howls of how such cuts would kill jobs. The question of how big our military should be is well above my paygrade, but it’s safe to say a significant amount of these jobs exist because of the peculiarity of our political process where congresspersons will fight tooth and nail to prevent any cuts in their districts.

There are ways to not just create jobs but empower people to do work of greater value. The five ideas I set out below could be adopted in any order or combination, along with virtually any other plan, and could be implemented either by governments or private groups. They don’t carry a huge price tag, but their results could be profound and long-lasting.

#1 Build People’s Networks and Social Capital

If you’ve achieved some degree of financial and professional success in life, you’ve stood on the shoulders not of giants, but of millions of people like you. Some of them you know, as family, friends, and colleagues. Others you never even see: they’re the people who know the people you know, and up through the many degrees of separation. This is your social capital.

In 2015, I found out that AIER was hiring because my friend happened to strike up a conversation with an employee in the sauna at the gym. What seemed at the time like small talk between two people changed a third person’s life. Many if not most of the opportunities in my life have come because I know people who know about them.

Social capital goes far beyond job opportunities. Our knowledge about how to navigate the world around us is critically shaped by behaviors learned from the people around us. I would not do well if dropped into a Brazilian favela, because I did not spend my formative years around people who knew how to navigate such an environment. Similarly, someone born and raised in a favela would likely have trouble finding, landing, and holding down a desk job in New England.

Many chronically unemployed Americans were not fortunate enough to be born into a world where learning how to succeed in today’s economy is simply a matter of looking at the people around you. Invest in their social capital, and you’ll steer them to the kind of value-creating jobs that lead to economic growth, not just a paycheck to get them by.

Imagine a group, loosely based around a low-income neighborhood, that holds weekly meetings. Around the room, you’ll see people interested in finding work, people who have recently found work, and people more established from both inside and outside that community. They talk about the challenges they’re facing, bounce around ideas, and hear how others have met them. When people hear about job opportunities, they bring them to the group. Ideally, people who find work and learn essential skills stick around, as the most potent examples for those trying to get their foot in the door.

Such a group would cost almost nothing to run. If it seems like smallball, incapable of putting a real dent in joblessness, then imagine a million of those groups. Their benefits don’t just add up, they multiply as they unlock the many degrees of connections in people’s networks. As jobs open up, they’re less likely to pull someone already in the workforce, and more likely to connect with someone aspiring to be.

#2 Fund Public Projects Through Innovation

The job guarantee’s size and eschewal of market mechanisms are deal-breakers, but there are more focused and rational ways to put some of the chronically unemployed to work for the public good. Local governments can leverage technology such as crowdfunding platforms to find and fund projects people most want done.

If people really want a new community theater or better-landscaped park, they can contribute real money to the cause. While crowdfunding does not fully solve the free-rider problem with public goods, it does allow for real skin in the game and decentralized decision-making and restores some of the incentive and information-discovery features of markets.

Such a process is promising for private funding of projects but could also be used by local governments as an innovative approach to taxation. Residents could apply a certain amount of their local tax dollars to the crowdfunding platform, kickstarting competition among local social entrepreneurs that unleashes creativity and innovation.

This is not a blanket solution to joblessness but has the potential to move the ball forward. The market-oriented features of crowdfunding would allocate labor to projects people actually value rather than the best guesses of a planning agency.

#3 Targeted Education

Education is also critical to the value workers bring to the labor market, but again an effective plan aimed at the chronically unemployed must be highly targeted. Once again, market forces combined with philanthropy and community involvement can help get the right kinds of education to the right people.

Our debt-based model to fund education has led to the student-loan debacle. But there are promising solutions that look to an equity-based model instead. I recently wrote about how Purdue University is pioneering income-sharing agreements. If a student loan is like a bond, an ISA is like a stock.

Students are given a fixed amount of money upfront to cover college costs, and then they pay back a certain percentage of their income for a predetermined length of time. The terms of the ISA vary based on major, with more favorable terms offered to more lucrative fields.

There’s no reason a program like this couldn’t be funded by organizations other than universities, and focus on sending students (including those chronically unemployed) to more vocational training. Students are incentivized to pick fields with higher demand, while the investors assume the risk of non-payment. Purdue’s program exemplifies the innovation that is possible when solutions are small, local, and targeted.

#4 Forget About “One Person, One Job”

It’s always struck me as odd that the left’s vision of “good jobs” is often a kind of corporate paternalism. Taking a page from the “back to the good old days” playbook of conservatives, we’re told of a golden age in which people often stayed with one company for their entire career. The company, kept in check by a union, paid a decent wage. The company naturally became a hub of services, benefits, and community for the workers and their families. Since the ’60s hadn’t happened yet, nobody asked the workers whether the jobs were fulfilling or made them happy.

Like it or not, times have changed. Our service-oriented economy and communication technology have in many cases left the idea of “one person, one job” as the quintessential square peg. This needn’t be a bad thing. The hours, working conditions, and pay from multiple smaller jobs are not necessarily worse than one big job. instead of trying to impose the jobs of 50 years ago on today’s world, we should make today’s jobs work for people.

The idea that everyone should get health insurance from the firm employing them made considerably more sense when people stayed at a single job for their career. We need reforms to help people buy insurance themselves. When we stop trying to “create” jobs that don’t make sense in the modern economy, we remove impediments to more people becoming fully employed.

#5 Stop Planning, and Help People

These reforms, like any plan large or small, will not be enough. People will still fall through the cracks. At some point, it’s appropriate to stop planning, whether with large interventions or focused deployment of market forces, and simply help people.

We need a social safety net that’s more locally focused, rather than one system prescribed for all. People can deliver services in a more personal way and copy good ideas from other communities. People often react to the idea of more local control with concern that the quality of services will be different in different communities. Coming up with a single big solution is intellectually satisfying, and it’s easy to see how there are more opportunities for things to break down at the local level. But the right point of comparison is not to a theoretically perfect single system, but to the system that would be implemented in the real world.

At the core of all five of these ideas is replacing large-scale heroic interventions with many smaller but more focused proposals. To be sure, such a framework is less fun to conceive of, read about, or debate than thinking big. But these ideas, along with many others, are likely to be the source of real progress.

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Max Gulker

Max Gulker is an economist and writer who joined AIER in 2015. His research often focuses on free markets and technology, including blockchain and cryptocurrencies, the sharing economy, and internet commerce. He is a frequent speaker at industry conferences, especially on blockchain technology. Max’s research and writing also touch on other economic topics, including governance, competition, and small businesses.
 
Max holds a PhD in economics from Stanford University and a BA in economics from the University of Michigan. Prior to AIER, Max spent time in the private sector, consulting with large technology and financial firms on antitrust and other litigation. Follow @maxgAIER.