South By North Strategies, Ltd.

Economist’s View offers some commonsense observations about the labor market.

Some people make growth the top priority in decisions about how to respond to an economic downturn. In this regard, they worry about the deficit and the confidence fairy somehow reducing economic growth. But while the evidence for the confidence fairy view is tentative at best (I’m being kind), the evidence that long periods of high unemployment cause permanent damage to the labor force — permanent drop-outs, etc. — which in turn reduces our actual and potential growth is much more solid. But this does not get the same amount of attention from policymakers, and perhaps this tells us something about whose interests command the most attention when policy decisions are made.
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Keeping people connected to the labor force in some way is valuable, and we are not doing anywhere near enough in this regard. I think decency is all it takes to justify doing something for the unemployed. We have an obligation to help people who are unemployed through no fault of their own, want to work, but cannot find employment. But for those where such decency is lacking, or who think that decency is too costly in terms of long-run economic growth, it’s important to realize that turning our backs on the people unlucky enough to be working in the wrong industry at the wrong time, the unlucky people who cannot find new employment and now find themselves struggling to get by, is also costly in terms of economic growth. Even if growth is all you care about, leaving the unemployed to fend for themselves is not the optimal policy.