Using Fiscal Policy to Improve Employment

There are many unemployed Americans that have given up on searching or training for jobs because they rely heavily on government support. Many of these people would face reality if in fact this support system faded. Maybe some would make it, but what happens to those who have grown accustomed to this “government benefit.” The government must either improve or implement a new job training program that would ensure a smoother and more permanent transition back into the labor force.

The American labor force consists of 146.7 million people. The number of unemployed persons is 8.4 million and the current unemployment rate in the United States sits at 5.7 percent. Both measures remain below their recent highest unemployment rate in June 2003, but it is still not the ideal percent for this economic giant. The United States is usually content with an unemployment rate that is between four and five percent (Appendix A). The recent increase in this rate has caused a rise in the cost of assistance needed. The Department of Labor’s Unemployment Insurance (UI) programs provide unemployment benefits to eligible workers who become unemployed through no fault of their own, and meet certain other eligibility requirements. The United States in 2003, spent $41,780,052 in Unemployment Insurance Benefits. Extended Benefits are available to workers who have exhausted regular unemployment insurance benefits during periods of high unemployment. The basic Extended Benefits program provides up to 13 additional weeks of benefits when a State is experiencing high unemployment. In 2003, the United States spent $147,988 to Extended Benefits (Appendix B). These statistics are evidence of the need for a reform in our government’s unemployment assistance.

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Who pays when people remain unemployed? The unemployed could be producing goods and services and if they are not, then GDP is lower than it could be. There is a loss of output to the economy. Unemployed people are not earning and they therefore aren’t paying tax. This causes a loss of tax revenue. We already know it increases government expenditure when the government has to pay out benefits to support the unemployed. Along with the loss of tax this is a ‘double whammy’. With higher employment, firms are likely to do better and make better profits. If they make less profit because of unemployment, they may have fewer funds to invest. So, unemployment causes loss of profits. The answer then is – we all pay.

Similar attempts have been made to reform the unemployment assistance programs in the past. To limit unemployment, over the past 50 years the federal government has supported the private sector’s efforts to create jobs and provided grants to states and other local authorities for work training programs. In addition, the government has created public service employment programs for the unemployed.

The Manpower Development and Training Act of 1962 authorized a three-year program aimed at retraining workers displaced by new technology. The bill did not exclude employed workers from benefiting, however, and it authorized a training allowance for unemployed participants. The 1963 amendments to the National Defense Education Act included $731 million in appropriations to states and localities maintaining vocational training programs.

The Comprehensive Employment and Training Act (CETA), passed in 1973, approved funding for vocational training programs (including stipends for trainees) as well as for public service employment. The bill required that each public service employment program provide participants the opportunity to learn skills useful in the private sector.

In 1982, Congress replaced CETA, which was expiring, with the Job Training Partnership Act (JTPA). The new law gave the states more control over how they distributed vocational training funds and ended federal funding for public service employment programs. JTPA training programs are administered by U.S. Department of Labor’s Employment and Training Administration.1

It would be beneficial to today’s labor force if fiscal policy was implemented, and created a more efficient system for the unemployed. Former policies were a great start, but they need to be updated and improved. It was the right idea to start job training programs, because many unemployed people in America lack the skills needed for certain jobs. This could be because they have not finished school. It could also be that technology is moving fairly quickly that it is hard to keep up with. Someone could choose not to work because they lack knowledge of using computers. If someone was taught the basics of computers, it would help them in the workforce. This is only one reason why people are unemployed, but training would eliminate one large sector of the unemployed.

Another improvement that should be made is the amount of time the person has to be insured. Reducing the time limit would motivate people to find a new job more quickly. A third proposal would be to impose a slight penalty once this time period has expired. Their unemployment check would become similar to a real paycheck in that it would be taxed. This way, the person receives less money and will be more motivated to find a higher paying job. The government would also get some of their money back.

There are many ways to revamp the unemployment assistance programs. In the past, these attempts have shown some advancement, but there is always room for improvement. I believe by using government spending and making a few adjustments, such as an improved job training, stricter time-limits, and penalties this will give the unemployed a little push back into the labor force. Through these changes, the government can reduce the unemployment rate and improve the state of the economy.

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