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Get Everyone Back to Work – and Make Work Pay

Summer is normally a time when Americans look forward to taking a vacation. In the pandemic summer of 2020, however, many of us probably would like nothing better than to get back to work.

Since the coronavirus reached our shores, tens of millions of Americans have been laid off or furloughed. Many others have had their hours reduced or their pay cut; have been prevented from plying their trade by stay-at-home orders; and, have stood by helplessly as businesses they built went under. Schools closings have compounded parents’ ordeal, since it’s hard to work or look for a job when you are taking care of kids at home.

More than 51 million Americans – almost one third of the nation’s workforce — have filed for unemployment since the pandemic began. In June, the official unemployment rate was 11.1 percent, which translates into nearly 18 million people out of work.

These figures don’t take into account the summer surge that has pushed Covid-19 infection rates to record heights in 39 states across the South, West and Midwest. Sunbelt Governors who heeded President Trump’s premature calls to “reopen” have closed bars, gyms and beaches to stem the spike in infections and prevent hospitals from being overwhelmed.

The longer the pandemic rages, the deeper the damage to a U.S. economy that remains largely locked down. So far, about three million small businesses have shut their doors for good. Many large companies also have announced sharp workforce reductions.

It’s estimated that at least 3.7 million Americans no longer have jobs to go back to. “It’s clear that the pandemic is doing some fundamental damage to the job market,” said Mark Zandi of Moody’s Analytics. “A lot of the jobs lost aren’t coming back any time soon.”

The economic pain inflicted by Covid-19 has not been distributed evenly. Hit hardest have been workers in retail, personal services, restaurants and hotels, entertainment and sports and manufacturing. Job losses are disproportionately high among low-income, black and Latinx workers.

Working Americans have made tremendous sacrifices to help the country contain an unusually infectious and deadly virus. Our country owes them an all-hands-on deck push to get everyone back to work as soon as conditions allow – and at a decent living wage.

What’s needed is a robustly funded national reemployment drive in which the federal, state and local governments work in tandem with the private sector to match displaced workers to openings in fast-growing sectors; acquire the skills they need to switch careers; and, lower obstacles to starting new businesses to replace those we’ve lost.

This initiative also should take aim at the low-wage trap in which many less educated U.S. workers are caught. Raising the minimum wage is necessary but insufficient to reverse decades of growing wage inequality. The reemployment campaign must also include new ways to lift the pay and career prospects of blue collar workers who have fallen out of the middle class.

Ideas for stimulating entrepreneurship appear elsewhere in this report. This section proposes three big initiatives for connecting displaced workers to new jobs and careers, and for making work play.

First, increase apprenticeship in America ten-fold.

The United States lags other advanced countries when it comes to apprenticeship and other “active labor market” policies to facilitate the rapid reemployment of laid-off workers. Yet research shows that workers reap significant financial gains from apprenticeship, which usually combines on-the-job training and classroom instruction. In fact, the gains surpass those from other alternatives, including completing a degree at a community college.

Employers also benefit too. Their recruitment and training costs decline and their ability to add skilled workers rapidly improves. They also report higher worker productivity and morale.

Since apprenticeship clearly is a “win-win,” it’s puzzling that there are only about 440,000 registered apprentices in the United States. The Urban Institute’s Robert Lerman, the nation’s leading scholar of apprenticeship, notes that if we aimed at creating as many apprenticeships as a share of our labor force as Britain, Australia or Canada, that number would climb to around four million, or nearly 10 times higher.

Facing the challenge of getting millions of displaced workers into new jobs as quickly as possible, as well as finding slots for first-time workers whose entry into the labor markets has been delayed by the shutdown, America should go big on apprenticeship. This will also make U.S. labor markets more resilient against future economic downturns.

U.S. lawmakers should create strong incentives for intermediaries (private or public) to organize apprenticeship training and placement and market them to employers. Lerman estimates the cost of stimulating 900,000 new participants in rigorous apprenticeship at $3.15 billion a year. Since most of the occupational training would happen at worksites, at no public cost, the government would pay only for off-site classroom instruction and training in “soft skills.” From the taxpayers’ perspective, apprenticeship is a bargain compared to the cost of subsidizing full-time attendance at community colleges.

Another way to scale up is to tap the growing number of private intermediaries that compete to supply employers with skilled and reliable workers.

There are thousands of private firms and non-profits that are well positioned to supply purpose-trained talent to their clients. Many are already providing services to dozens or hundreds of clients in sectors facing talent shortages, notably technology or healthcare. Ryan Craig, an investor and writer, notes that these business services companies can become a vector for new talent by bridging the crucial “last mile” between educational institutions and employers. In what Craig calls an “outsourced apprenticeship,” they hire laid-off and entry level workers and train them with an eye toward the occupational and soft skills required by specific companies. The intermediaries incur the training expense and get paid only when they succeed in placing their apprentices in full-time jobs. In so doing, they can create frictionless pathways to good first jobs.

The federal government can stimulate the growth of this competitive market with “pay for performance” awards financed by shifting funding from higher education (especially community colleges). Private intermediaries would get paid for each placement when they hire candidates who meet certain criteria (such as eligibility for Pell grants), provide them with an apprenticeship that pays minimum wage, train them and place them in permanent positions.

Second, it’s time to end the federal bias against career education.

Even with a quite low unemployment rate before the virus struck, the U.S. economy suffered from a dearth of skilled workers. This “skills gap” left more than seven million jobs unfilled. When you add to that the millions of workers whose previous jobs vanished in the pandemic, it’s clear that our country faces an enormous reskilling and upskilling challenge.

A national reemployment initiative therefore must expand access to high-quality career education and training. Yet federal policy tilts heavily in favor of aid for college-bound youth, while providing far less support for the majority of young Americans (69 percent) who don’t get college degrees.

Many of the jobs that define the skills gap are positions that require specialized occupational training or education but not a four-year degree. More than half of U.S. jobs, in fact, are “middle skill” jobs in such fields as cybersecurity, welding and machining, truck driving and home health. They often require a certificate, license or other industry recognized credential.

Yet federal financial aid for career education and training is a pittance. In 2016, Washington spent more than $139 billion on post-secondary education, including loans, grants and other financial aid for students. Of that, just $19 billion went toward occupational education and training.

Demands from Sen. Bernie Sanders and others for “free college” would compound this inequity, showering new benefits on college-bound youth at the expense of working families whose children don’t go to college. Instead, as a simple matter of equity, Washington should invest a roughly equal amount to expand access to high-quality career education and training for young workers who need post-secondary credentials but not a four-year degree.

Third, create a new “Living Wage Credit” to make work pay.

A national reemployment drive should also aim at reversing the decades-long trend toward wage stagnation and diminished job prospects for working Americans without college degrees. This dynamic is shrinking America’s middle class and creating a new class divide along educational lines.

Our economy’s seeming inability to generate decent family wages for non-college workers – along with unfounded fears that robots
are making many workers superfluous — has triggered calls on the left for guaranteed government jobs or income.

Pragmatic progressives ought to avoid statist solutions and instead offer direct support for low-wage workers. By raising the minimum wage and instituting a new “Living Wage Credit,” our country can ensure that all full-time workers earn enough to support a middle class lifestyle.

Inspired by the success of the Earned Income Tax Credit (EITC), the Living Wage Credit would function as both an incentive and reward for work. It builds upon similar proposals by Tax Policy Center’s Elaine Maag, and the Brooking Institute’s Belle Sawhill.

Sawhill’s version, for example, would give all U.S. workers a 15 percent raise up to some annual ceiling ($1,500). The tax credit, essentially an offset to the payroll tax cut, would phase out as earnings rise past $40,000 a year. Unlike the EITC, the Living Wage Credit would be based on an individual workers’ income, not household income.

PPI’s more ambitious Living Wage Credit absorbs the EITC, provides more generous tax relief and offsets the cost with a new national tax on consumption or value-added tax (VAT). In the absence of a VAT, however, the costs of a stand-alone credit for workers above the EITC cutoff could be defrayed by taxing the unearned incomes of wealthy Americans.

For example, a “tax wealth, not work” package could include higher rates on top earners; equalizing capital gains and personal tax rates; and, replacing the current estate tax, which the 2017 Trump-GOP tax bill cut dramatically for the wealthiest heirs, with a progressive inheritance tax (as proposed last year by PPI).

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