Jobs of the future require buy-in at the local level

As obsessed as we are with trade these days, more jobs will be lost to technology over the next decade. That’s not to say we should hinder the tech industry — it creates plenty of high-quality jobs, too. Instead, local leaders should set the stage to improve their local workforces.

Robert Kaplan, president of the Federal Reserve Bank of Dallas, was recently asked about the jobs issue. He said, “If you are waiting for the federal government to solve this problem, you can stop.” Kaplan was underscoring the importance of job retraining and highlighting the role of local (as opposed to federal) leadership. 

Nonetheless, at some point in the future, Congress will consider how to help workers adjust, including a possible expansion of the federal program, Trade Adjustment Assistance (TAA).

Members of Congress should know what works and what does not. Mounting evidence shows job retraining works, regardless of why you lost your job, and it is best done at the local level.

If you are unemployed because you are moving between jobs or got temporarily laid off during a downturn, odds are you will find another job sooner or later. As The Economist explained, cold-hearted economists are not worried about these types of unemployment (frictional and cyclical, respectively).

Plus, our growing economy and tight labor market tend to fix most of these ills. But if you lost your job because your skills are outdated due to technology or foreign or domestic competition, that can be a different story. And it will be worse when the economy slows down and the labor market loosens up.

This last group — the “structurally unemployed” — often become discouraged and drop out of the labor market altogether. To make ends meet, some seek disability status. Certain communities are all too familiar with this story. The concentration of disabled workers is highest in in the South, Appalachia and the Great Lakes.

After the Great Recession, unemployment rose sharply, from about 5 percent in December 2007 to 10 percent in December 2009. The number of Social Security Disability Insurance beneficiaries reached an all-time high in 2013-2014 of nearly 9 million.

The labor force participation rate was 66 percent in December 2007, dropped steadily until about 2016 and then leveled off — but not at pre-Great Recession levels.

Once a person stops looking for work, they are no longer counted as either working or unemployed (the reason labor economists don’t get excited about low unemployment rates when participation rates are also low).

In other words, a large chunk of people lost their jobs in the Great Recession and never really came back. The good news is that the composition of the unemployed is changing.

The pool of structurally unemployed workers seems to be shrinking. Encouragingly, economists Hie Joo Ahn and James Hamilton have found that the newly unemployed today are not as prone to long-term unemployment as those during the Great Recession.

Will this trend continue as automation and artificial intelligence continue to transform the workplace and production floors? Workers need retraining, and they need easier access to it.

Kaplan also noted that when the skills of the available workforce and the needs of businesses don’t match up, local leaders can be catalysts and help solve the problem. Training and retraining programs work better when run by local officials, local nonprofits and junior colleges.

There’s more good news: Job retraining seems to be effective. In a recent study, economist Benjamin Hyman followed 300,000 displaced workers over time. Ten years out, workers who received retraining through TAA had not only stayed in the workforce for the most part but also had approximately $50,000 more in cumulative earnings than their counterparts who did not retrain. 

Economists Chad Bown and Caroline Freund, meanwhile, looked at the big picture and surveyed many types of employment incentives across countries. They find job retraining not only helps to build a stronger and more flexible workforce, but it also boosts the effectiveness of job placement services.

Bown and Freund contend, however, that TAA’s limited funding and narrow focus on trade-related job loss means only a tiny fraction of workers with skill mismatches are eligible. 

This is not to say we should simply pour more money into TAA. But the evidence seems clear that training helps, and it is best done when companies can do it in-house or when local junior college leaders work with businesses to address the skills mismatch. 

As Congress considers training and adjustment assistance programs in the months ahead, they should work to include state and local buy-in to make local job training programs more efficient.

Christine McDaniel is a senior research fellow with the Mercatus Center at George Mason University.