Growing US joblessness prompts alarms, solutions
Washington — While America's attention focused on inflation and recession, an old economic problem was quietly becoming more acute. Unemployment is near a record for the postwar years, with 460,000 job losses pushing the rate for last month up to 8.9 percent.
For the demographic pockets where joblessness hits hardest, the news was worse: Unemployment among blacks and other minorities rose to 16.1 percent in December; for teen-agers, it is 21.7 percent.
Rep. Henry S. Reuss, the staunch Wisconsin Democrat who runs the Joint Economic Committee, called the figures ''shocking.'' Indeed, they seem high enough to give unemployment a political visibility it has lacked since the rise of supply-side economics. Against this background comes a new study from the Brookings Institution, proposing that targeted employment subsidies can reduce unemployment without aggravating inflation.
Can we have government-sponsored job programs without the adverse economic effects ascribed to past efforts? If unemployment breaks 10 percent, as some economists predict, the Reagan administration may find itself addressing that question whether it wants to or not.
In the early '70s, various federal job programs were costing $1 billion annually. For the period 1978-81, that jumped to $7 billion a year, with most of the money going for public service employment under CETA, the Comprehensive Employment and Training Act. CETA has now been greatly reduced through budget cuts.
''What are the alternatives this society faces for dealing with those with no work and low skills?'' asks Robert Haveman, University of Wisconsin professor and co-editor of the study. ''The way I read it, the only way you'll get these people private sector jobs is to make it more attractive for the private sector to hire them.''
The core of the Brookings study is a paper by Donald A. Nichols, a professor at the University of Wisconsin. It argues that unemployment can be eased anywhere from one-half to two-thirds of a percent - about 500,000 jobs - with no boost in inflation by government subsidies for the hiring of new employees.
To be successful, however, the program must be aimed at workers in slack labor markets. The areas of deepest unemployment - low-skill, hard-to-hire workers - would be the proper target.
These findings confirm recent work of Nobel economics laureate James Tobin and colleague Martin Baily, who find that high-wage employment costs figure more in the inflation rate than low-wage ones. So, by subsidizing the hiring of low-wage workers, the government can, in effect, lower corporate production costs - thus easing upward pressure on the inflation spiral.
The cost? Professor Nichols says the increase in employment can be had for between $7.5 billion and $29 billion in government funds. In today's budget-crunching era, debate on such a program would likely center on whether it was obtaining enough employment bang for the government's subsidy buck.
''That's a judgment call,'' says Nichols, ''but I feel it's a pretty cheap way'' of attacking the problem.
Professor Nichols estimates that a stimulative tax cut, to have the same effect, would have to cost upward of $35 billion. Such tax cuts have been the traditional unemployment-fighting instruments of post-World War II fiscal policy. And many economists say the Reagan rate reductions are the same thing, dressed in supply-side clothing.
Indeed, John L. Palmer of the Urban Institute, another co-editor of the study , feels the coming tax cut could be scaled back, and a targeted jobs subsidy slipped in beside, with no change in the macro-economic effect of the package.
''To substitute a modest subsidy (for part of the tax cut) would mean overall fiscal policy would remain the same,'' says Mr. Palmer.
Current law has a targeted job tax credit on the books. Scheduled to expire on Dec. 31, it was extended for two years by last July's tax bill, with certain target groups widened (an age limit for Vietnam vets, for instance, was dropped). But the requirements for certification increased.
The Brookings study also addressed how any new employment subsidy program might be structured. The most surprising results along these lines came from a paper by Robert Lerman of the Department of Labor. Mr. Lerman's statistical study concluded that subsidizing the employee, rather than the employer, might be the best way to make inroads into hard-core unemployment.
''Lerman throws into doubt the previously held assumption that employer-based subsidies stimulate job creation more than employee-based subsidies do. . .The main advantage of a wage-rate subsidy is that, by providing assistance only to those who are employed, it may encourage rather than discourage additional work effort,'' concludes the report.