Unemployment is Not an Economic Problem–It’s an Education Problem

The retraining of the unemployed has the potential to become one of the greatest business opportunities of our time.

Our society can never recover the loss we experience each day that a person who wants to work cannot find employment.

There are approximately 30 million adults in the U.S. who want work but can’t find it. Unemployment and the economy are shaping up to be the major two issues in the upcoming 2012 election.

In the 1992 Presidential election, “It’s the economy, stupid” was a phrase used by Democrats to unseat a sitting U.S. president. But today, when it comes to unemployment, “it’s not the economy.” This economy is doing fine, thank you. Gross Domestic Product, retail sales, and virtually all leading economic indicators except employment are up–except they are up without the participation of 30 million Americans who desperately want to participate.

Both political parties are misguided in their solutions for unemployment. Democrats generally follow the ideas of economist John Maynard Keynes who recommended deficit spending to pay for entitlements until the economic cycle recovered. Republicans generally follow the ideas of the Austrian economist Friedrick Hayek who believed that any government intervention in the economy is disastrous and counterproductive.

Although I’m generally known as an “Austrian school” economist, I believe that most of the 30 million U.S. unemployed will not find employment without affirmative government action. That’s because most of the unemployed today are unemployed because:

(1)  They lack specific skills needed today by employers;

(2)  They have health issues (like drug abuse or psychological problems) that make them difficult to manage in the workplace; or

(3)  The employment market is inefficient in matching their skills with specific opportunities;

Good managers and entrepreneurs know how to solve these problems when they hire new employees or guide an employee through a difficult time. But we cannot expect businesspeople to spend their own private funds to fix a problem they did not create—especially when they can hire people or more technology without these problems.

Here are some potential solutions we should consider now to get the unemployed back to work.

(1) Subsidize Employers to Hire Those Receiving Unemployment Benefits. Subsidize jobs and/or internships with “reverse payroll withholding”-the longer the time the new hire was unemployed, the higher the employer subsidy for hiring them. This should be structured to be cost-neutral so that the employer subsidy for hiring someone on unemployment does not exceed the expected future government pay out in benefits if they had remained unemployed.

(2) Mandatory Retraining after 90 Days of Benefits. Anyone receiving unemployment benefits past 90 days should be required to enroll in training and/or internship programs sponsored by local schools or employers-with the local employers who participate being held financially accountable for overall employee success in getting permanent jobs.

(3) Drug Testing. Unemployment benefits should not be paid past 30 days without mandatory drug testing similar to what potential employers now require in their hiring. This will weed out the unemployed who, through their own behavior, are not ready, willing and able to work.

(4) Needs Tested Benefits. No unemployment benefits paid if household income exceeds $100,000 or net worth exceeds $1 million—similar to Medicaid and other safety net programs. Incredibly, this is not the case today. Since 2009, thousands of millionaires keep getting their unemployment benefits extended again and again.

(5) Employment Malls. Government assisted programs and local “employment malls” to match employees with employers and reduce what economists call “frictional unemployment”.

(6) Extend Public Education to Adults. Many of the unemployed are among the sixty (60) million adult Americans without a high school diploma, yet government programs don’t exist for high school students over age 19.

When it comes to unemployment, I’ve been influenced by the novelist Ayn Rand (“The Fountainhead”) along with Lord Keynes and Professor Hayek. Rand believed that most entitlements were evil incarnate because they robbed people of their dignity.

We can, and should, find solutions for unemployment, provided we first recognize that human dignity and self-esteem are more important than economic success. As someone much wiser said about 2000 years ago: “For what is a man profited, if he shall gain the whole world, and lose his own soul?”

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