SOURCE: Center for American Progress
CAP Senior Economist Heather Boushey testifies before the Subcommittee on Human Resources of the Committee on Ways and Means. Read the testimony (CAPAction).
Thank you, Chairman Davis and Ranking Member Doggett for inviting me here today to testify on how we can improve our efforts to help unemployed Americans find jobs. My name is Heather Boushey and I’m a Senior Economist with the Center for American Progress Action Fund.
The basic question for today’s hearing is: Are we doing everything we can to help the unemployed find jobs? We’ve made progress, but there is much more we can do to focus on generating jobs and bringing the unemployment rate back down.
In my testimony today, I will make three key points:
- The unemployment problem continues to be caused by too-little aggregate demand. If we want to help the unemployed, we need to address the output gap, the gap between what our economy is producing and what it could be producing at full employment.
- Today’s unemployment is not a structural problem. The Great Recession caused the record-high numbers of unemployed and the record-long spells of unemployment that we’ve seen.
- Funds spent on benefits and services designed to help the unemployed find new work have mitigated, not exacerbated the problem. The best economic evidence is that unemployment benefits and transitional jobs programs have helped, not hurt. What’s more, by boosting economic growth, the actions we’ve taken have actually made the long-term deficit smaller than it would have been without action.
Today’s high unemployment is a function of the reality that there simply aren’t enough jobs to go around because there is not sufficient demand in our economy. The shortfall in aggregate demand amounts to almost 6 percent of U.S. gross domestic product, primarily due to lost investment and lost employment, and resulting from the bursting of the real estate bubble and the ensuing Great Recession. This is the output gap that we need to fill in order to make our economy whole so that everyone who wants to work can find a job.
While the economy has been growing for six quarters now, businesses have not yet begun to ramp up hiring. High unemployment not only creates significant hardships for individual families, it continues to threaten the employment recovery: The unemployed can’t spend what they don’t earn, which is why high unemployment directly adds to our nation’s aggregate demand problem. Thus, there is a direct link between lack of hiring and future economic growth.
To address this, Congress should focus on three specific policy goals:
- Focus on maintaining the boost in aggregate demand. Investment—including investment in infrastructure—is the best way to ramp up employment now, while building the foundation for a high-productivity future.
- Stop adding to the problem of unemployment. In this recession, once someone has lost their job, they are facing historically low odds of finding a new job. Congress should seek to ensure that those who are working can stay in their jobs.
- Help the long-term unemployed beat the odds and find work. We know from decades of research that the displaced and long-term unemployed are more often at the bottom of the hiring queue and often suffer years of lowered earnings. Congress should consider reinvigorating the TANF Emergency Funds that put people to work in public/private partnerships.
And, I will note, at this point in the economic recovery, the costs of inaction continue to far outweigh the cost of action. While we need to keep our eye on a growing federal debt, addressing the scourge of long-term unemployment now will do more to cut future deficits than not.
CAP Senior Economist Heather Boushey testifies before the Subcommittee on Human Resources of the Committee on Ways and Means. Read the testimony (CAPAction).