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How to Help the Long Term Unemployed

April 24, 2011

1-minute read

The OECD have weighed in on what policy measures are needed to limit the damage of long term unemployment in the aftermath of the Great Recession.

I would judge the NDP platform - which includes a significant job creation tax credit and increased EI benefits - to be closest to the OECD prescription.

The OECD note in a pre release of a paper to be published in the next Economic Outlook that outflows from unemployment are low in many countries (notably the US) due to a weak economic recovery, and that the proportion of the unemployed who have been out of work for a long time is rising in most countries.

Perhaps surprisingly, one key finding is that young workers have been much harder hit than older workers, and that it is younger workers who are now most at tisk of chronic long term unemployment. A major concern is that some will find themselves excluded from the job market on a permanent basis, at a major social and economic cost.

While the incidence of long term unemployment in Canada is low in an OECD context, unemployment is high among young workers, and the incidence of long term unemployment has risen well above pre recession levels.

The OECD make three major policy proposals which deserve a wider hearing in the election campaign.

First, temporarily extend unemployment benefits in countries where such systems are weak so as to provide needed income support:

"In the United States, Canada and other countries where unemployment benefit duration has been extended, the case can be made for maintaining the extension until labour market prospects have sufficiently improved to prevent individuals from falling into persistent poverty."

Second, consider providing temporary hiring subsidies:

"Where job prospects remain bleak, the policy focus in the short term should be to continue to boost labour demand so as to increase unemployment outflows. Among the policies that can stimulate labour demand, measures to reduce labour costs through temporary and targeted tax wedge reductions are likely to be most effective. Indeed, such measures have already been put in place in several countries,though not always in a cost-efficient way."

Third, invest in training:

"In parallel to boosting labour demand, and to offset the risks that unemployed workers see their skills eroding to the point of losing attachment to the labour market (through so-called unemployment duration dependence or hysteresis effects), more could be done to improve the matching of workers and jobs, including through measures to strengthen public employment services and training programmes.

As the risk of missing a job opportunity by suspending job search to enrol in training is lower in periods of labour market slack, there is a case for strengthening vocational training given the high rate of unemployment among youth and the low skilled."

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