The Price of Civilization_ Reawakening American Virtue and Prosperity - Jeffrey D. Sachs [79]
New Approaches to Medium-Term Economic Policy
To achieve these core objectives, we will need to adopt a new approach to economic policy. We will need a mixed economy approach, relying on the two pillars of government and markets; we will need a commitment not only to efficiency but also to fairness and sustainability; we will need a longer-term vision based on investments and structural change; and we will need to act holistically, with policy innovations introduced simultaneously across several sectors of the society. Here is a brief sketch of some of the most important policy initiatives.
A New Labor Market Framework
America’s jobs crisis reflects mainly a failure in the labor market itself, not a failure of the macroeconomy. By that I mean that lasting solutions to jobs will be found not by turning the dials of Federal Reserve credits or boosting aggregate demand through budget “stimulus” but rather by improving the skills of the workforce, the quality of working life, and the proper functioning of the labor market. Several countries in Europe, including the Scandinavian economies, Germany, and the Netherlands, have achieved great success through a range of “active labor market policies” targeted at building skills, creating flexible and satisfying work conditions, and matching workers with appropriate jobs. It is time the United States turned to an active labor market policy of its own.
America’s job challenge begins with the skills deficit. Consider the December 2010 unemployment rate: 9.4 percent of the labor force, with a total of 17.5 percent of the labor force either unemployed or on involuntary part-time work. Yet the unemployment rate varies considerably by age and education levels. Among those sixteen to twenty-four, it was a staggering 19.3 percent, while for those twenty-five years and older, the overall unemployment rate was less than half that, 8.3 percent.
As I’ve repeatedly noted, we now have a starkly divided labor force for those with a college education and those without. With construction jobs lost following the housing bubble, and with lower-skilled manufacturing jobs long gone to China, Mexico, and other emerging economies, lower-skilled workers face very low wages, weak job attachment, and diminished chances of landing a stable job. We saw earlier that median earnings for workers without a high school diploma are a meager $20,000 per year and for those with a high school diploma $27,400. College graduates average $47,800 and holders of advanced degrees $63,200. The education/earnings gradient is steeper than ever, as the bottom has fallen out of the labor market for low-skilled workers.
The crisis is the worst for youth, especially minority youth, aged sixteen to nineteen in the labor force. The key long-term jobs strategy must therefore be educational attainment and skill formation. In general, this should entail the goal of universal high school completion, a 90 percent or higher continuation rate to college or vocational school, and a 50 percent or higher continuation rate to a bachelor’s degree. By 2020, at least half of nineteen- to twenty-three-year-olds should be on their way to a bachelor’s degree. We can agree with a recent congressional advisory panel that “America’s global competitiveness depends on the ability of our high school graduates to earn at least a bachelor’s degree.”3 For students who have already dropped out, the goal should be a targeted effort to bring such youth up to at least a high school equivalency diploma and then on to a community college or vocational school. A tight labor market will not suffice: those kids lack the skills they will need to function for the next forty years in the labor market, not just the next business cycle.
Bolstering the skills of the U.S. labor force is the core long-term solution, but the jobs crisis is pressing in the short term. What can be done