Subsidized employment can get more people working while economy is strong

With the nation’s unemployment rate now at 3.5 percent – its lowest point in decades – American employers and workers face a relatively tight labor market. Wages are rising at least modestly, and workers have more choices over whether and where to work.

The encouraging news has brought many workers back to the labor force who had left in previous years. Indeed, participation rates among prime-age workers (those in ages 25-54) have rebounded somewhat since the Great Recession and are now above 90 percent for men and 80 percent for women. Still, workers with lower levels of educational attainment are less likely to be back in the labor force, at approximately 80 percent for men and just over 50 percent for women with no high school diploma.

And, in economically distressed regions, participation rates are even worse. Our recent analysis of the Detroit labor market shows that only about 70 percent of prime-age adults and 45 percent of high school dropouts there are in the workforce. If we include people likely undercounted in the data such as citizens returning from prison and those experiencing homelessness, the rates of work are likely lower.

What keeps so many people out of the workforce? Our analysis suggests certain conditions and barriers may make it difficult to find a job, like lacking a high school diploma, having a criminal record, physical or mental disabilities, not possessing a car, or a lack of recent work experience.

Yet, a range of policy approaches can address these challenges. We should redouble our efforts to implement these policies now, while the labor market remains tight, and employers are more open than usual to hiring from their less-favored populations.

Such efforts can include increasing investments in occupational training for work in high-demand fields like health care and hospitality, as well as stronger job placement and transportation assistance to help workers reach jobs in areas less accessible through public transit. Bolstering incentives to employment for working families by increasing the Earned Income Tax Credit (especially for those without children who now qualify for very little), could help as well.

But for many potential workers with one or more severe barriers, such as disabilities and criminal records, a different strategy might be needed: subsidized employment in either the public or private sector. Subsidized employment programs provide jobs to individuals who struggle to obtain employment and cover some or all of the cost of their wages and benefits. In distressed regions or during tough economic times, subsidized jobs could create more demand for all workers. But for those with significant barriers, such job opportunities can be essential even in a strong economy.

Previous efforts to subsidize jobs for workers facing such barriers or in distressed regions were successful in raising work activity. In a variety of cases, temporary subsidies for jobs have increased employment rates among ex-offenders, welfare recipients, high school students (during the summer), or low-income families in distressed regions more generally. Sometimes the increases in employment last beyond the period of the subsidy, implying that workers have gained job readiness skills or valuable experience in the process. In other cases, the benefits of employment fade after the support ends. But, even so, additional benefits can emerge – like lower rates of reentering prison – or for their families – like better school outcomes for their children.

And the work generated in subsidized jobs can be socially valuable as well. For instance, subsidized work has delivered cleaner public parks and improved low-income housing. And some employers claim that they benefited from hiring subsidized workers, sometimes keeping them on beyond the period of subsidy.

Of course, publicly subsidized jobs will not work for everyone – especially those with significant work-limiting disabilities or those facing multiple barriers to employment. Subsidized jobs programs should match workers to appropriate employers, depending on what has kept them out of work in the first place. Workers going to private for-profit employers are higher on the job readiness ladder than those working in non-profits or other public jobs. And the costs of these job subsidies are not necessarily low to the local, state or federal governments providing them.

But, at the same time, the social and economic costs of having so many people not working – even when the overall job market is tight – are enormous. Accordingly, undertaking reasonable efforts to improve worker skills and readiness while directly providing some with jobs makes imminent economic sense.  

Harry J. Holzer is LaFarge Professor of Public Policy at Georgetown University and a senior fellow in Economic Studies at Brookings. Joshua Rivera is Senior Data and Policy Advisor at Poverty Solutions at the University of Michigan.