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The Missing Millions

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The Missing Millions

August 9, 2017

The economy now has over six million job vacancies, according to the Labor Department,  that's a record since the Department began tracking the data in 2000. Openings were highest in the Midwest and West, followed by the South and Northeast. Employers are clearly confident and trying to increase hires.

Job openings are available across a wide range of skill levels, ranging from high-skill professional services to lower-skill education and health services and construction.  For those who want to work, openings exist.

Some of the openings are due to natural turnover between jobs, ever-present in an economy. Other are due to a skills mismatch, or because applicants have drug or felony problems. Resolving these issues are the subject of another column. But at the same time as the vacancies, almost 60 percent of nonworking men are on federal disability benefits, according to AEI scholar Nicholas Eberstadt's analysis of census data. Over 13.2 percent of Americans are on food stamps and 25 percent are on Medicaid. As these benefits have increased, fewer Americans are working.

Most of the decline in labor force participation is from those under 54, not from older Americans, whose labor force participation rates are increasing.

Increases in benefits have likely contributed to the decline in participation, according to University of Chicago economics professor Casey B. Mulligan, the 2014 winner of the Manhattan Institute’s Hayek Prize. Mulligan suggests  that increases in federal benefits since 2007, such as disability insurance, food stamps, and other means tested programs, have discouraged people from working.

In other work, Mulligan has estimated  that the likely effect on the labor force of Obamacare will be reduced employment.  Some employees will have to work more, and others less, with an average reduction in employment of 3 percent.

Although the economy is generating record levels of vacancies, the labor force as a percent of the population is still at 1970s levels and has not returned to prior stages.  This lower labor force participation will eventually lead to slower economic growth and steadily higher federal and state tax burdens, even if Congress reduces taxes and modifies Social Security and Medicare benefits for future retirees.

This is also a problem in Japan and Europe, where the ratio of the retired to the working is rising.

By consolidating benefits and returning them to pre-recession levels, the employment rate would likely rise by eliminating some of the disincentives for people to work. One approach to these programs would be to phase them out gradually as Americans enter the labor market and find work. 

Giving states flexibility to design their own welfare programs would catalyze state-based reforms designed to shift people out of poverty and into the workforce. This flexibility, combined with capping federal welfare funds to states at the rate of inflation and the number of people below the poverty line, could save billions of dollars a year.

Because many programs are funded by the federal government, states currently lack an incentive to get people off welfare rolls. Food stamps encourage states to expand enrollment and increase benefits as a way to receive more federal money, at no cost to state treasuries. Capping the currently unlimited inflow of Washington funds would require states to focus on moving individuals off public support.

If states were allowed to direct savings from welfare spending to other uses, such as infrastructure, they would have more of an incentive to cut costs and make programs more efficient.

Providing states with increased flexibility to shift resource levels between welfare programs offers other advantages. States with low food prices but high housing costs might shift resources from food stamps to housing programs. States could also use funding from existing programs to experiment with new ones, such as low-cost community college workforce training and apprenticeships.

One positive example is New York City's welfare caseload, which declined by nearly 70 percent between 1994 and 2009, while employment rates for single mothers rose from 43 percent to 63 percent. Robert Doar, who served as state or city commissioner during much of the period, credited the change to the city's requirement that welfare recipients work as a condition of benefits payments. Under his direction, the Human Resources Administration resembled an employment agency where work, not training, was a more effective path to getting people off welfare rolls.

The increase in job vacancies is a welcome sign of a growing economy. Now the challenge is getting the vacancies filled.

Diana Furchtgott-Roth (@FurchtgottRoth) is a senior fellow at the Manhattan Institute and an adjunct professor of economics at George Washington University.

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