Three Big Ideas for Solving Unemployment

The month of July, so far, has seemed like hell for close to 2.5 million Americans. That's the number of people who lost their unemployment benefits when Congress did not pass the jobs bill before its July 4 recess.

The Senate voted Tuesday 60–40 to break the filibuster on the roughly $33 billion legislation, which will extend unemployment benefits for the long-term unemployed through November and which could start paying benefits as early as next week. (Republicans had originally opposed the plan, saying it would only add to what they see as an out-of-control deficit.) President Obama slammed the Senate's failure to pass the bill during a speech on Monday in the Rose Garden, where he was accompanied by a former auto-parts manager who has been unemployed for roughly two years.

But apart from extending unemployment insurance, the country still needs to figure out a smart way to create jobs for millions of people whose industries and livelihoods have altogether disappeared. The U.S. labor market has undergone such a dramatic shift that many jobs in construction, manufacturing, and the auto industry will not return, and some employers say workers do not necessarily have the technical or mathematical skills to compete in today's workplaces.

So, how should we put 15 million unemployed Americans back to work? Here's a quick look at the big ideas for solving the jobs crisis.

(1) Retraining programs tied to specific communities and regions: If all politics is local, couldn't the same be said for labor markets?

Rather than focus on the next hot jobs nationwide, economists, businesses, and local governments should think about the types of positions they will need to fill in their various states or regions and then tailor retraining programs to those needs. Job-training programs in Boston, for instance, could focus on clerical training for the medical field, since the hospital industry dominates the city's economy. "There are always jobs in a recession—just not jobs for everybody," says Sheila Maguire, vice president for labor-market initiatives at the nonprofit Public/Private Ventures. "If you're in touch with local employers, then you can position the training programs in relation to real needs."

(2) A national wage-insurance system: The U.S. already has an unemployment-insurance system, but what about a wage-insurance system to help people who've returned to work at lower salaries?

That's an idea that Lawrence Katz, a professor of economics at Harvard University, has been batting around, as a way to help workers who face a long-term loss of income and who, as a result, could lose their homes, cars, or ability to spend money. Katz says the program could be a short-term fix during major economic crises, like this one. Workers would pay into the wage-insurance system, just as they do with Medicare or unemployment insurance, and the weekly checks would help people cover the gap between their old earnings and their new ones. "Right now, unemployment insurance keeps our income up, but it only gives you benefits if you're out of work," Katz says. "A wage-insurance system would give you time to get your earnings back up, and it would make sure that a short-run shock does not lead to people being out of the workforce forever."

(3) Forming partnerships with the business community: The federal government has been slow to respond to the jobs crisis, as my colleague Daniel Gross has pointed out. Rather than wait for Congress to come up with a plan, why not work with business leaders and let them drive the recovery?

A new survey of business executives by Accenture shows that 54 percent of large U.S. businesses plan to hire employees within the next two years, particularly in the area of sales and customer service. Businesses could offer classes in these areas to both workers they hire and workers already within the organization, says one of the study's authors, David Smith. "We will see a growing call for public and private relationships," Smith says.

The biggest pressure is to make sure that workers do not stay out of the labor market for too long, like the 6.8 million people who have been unemployed for six months or more. Months upon months of unemployment erodes people's skills, office savvy, and savings. It leads to more people going on disability earlier or starting to collect social security at a younger age than they normally would have. Worse, it ruins people's confidence—and that's a hard thing to lose when the country needs to stay competitive.