Page images

Teenagers may become a smaller part of the labor force but the increase in female participation is expected to continue. It is difficult to tell whether the effect of the growing number of women who are permanently in the labor force—and therefore should have unemployment rates similar to men in comparable circumstances-will offset the effect of the women who are entering or reentering the labor force after an extended period of absence.

It is clear that the employment experience of secondary workers in a family is different from that of breadwinners. Many teenagers seek employment only during school vacations. Some mothers with school-age children seek employment only when schools are in session. The needs and skills of these groups must be matched with job opportunities if the overall unemployment rate is to be reduced to the levels of the previous generation.


Only if education and training programs foster skills that are in short supply will there be a net addition to employment. Manpower training programs are not likely to be successful when unemployment is very high. As unemployment recedes, however, the need to match skills and jobs will increase. Otherwise, both unemployment and inflation will be higher than necessary. This suggests that it would be worthwhile to include training as a component of any public employment program and to develop better training and information support for teenagers.

The next few years could provide an opportunity to upgrade the skills of the labor force if effective training programs can be mounted and if economic recovery can be counted on to provide jobs for those who have completed training.

Although 43 percent of the jobs-oriented portion of the Federal budget is invested in training and rehabilitation for persons who cannot find work, no comprehensive review ever has been made of the effectiveness of those programs.

Some very general conclusions about training and rehabilitation programs were reached in a 1975 review of 252 fragmented studies of various individual programs.

The review supports only the broadest sorts of conclusions about the effectiveness of programs: (a) they have enhanced the earning power of trainees modestly; (b) they have not solved all the problems of people who have been enrolled in the programs; and (c) they cannot be judged failures. Because of differing assumptions among the studies, different data bases and differing methods of review, the conclusions are only tentative. A better evaluation is unlikely until there are experiments that compare the work experience of training program graduates with control groups of individuals with similar backgrounds who did not enroll in training programs.

The best-designed study available for review concentrated on 1964 graduates of training programs under the Manpower Development and Training Act.

* Perry, Charles R., et al., The Impact of Government Manpower Programs (The Wharton School, 1975).

5 Orley Ashenfelter, “Program Report on the Development of Continuous Performance Information on the Impact of the Manpower Development Act", Technical Analysis Paper No. 12A, U.S. Department of Labor, October 1973.

On the basis of his review, the author concluded that: (1) The training program increased the average annual earnings of

graduates by $377 between 1965 and 1969. (2) Black males benefited more from the program than did white

males, enhancing their earnings by an average $350 a year contrasted with an average increase of $250 a year for white

males. (3) Both black and white females benefited most from the program,

increasing their earning power by an average $550 per year. Other research establishes some general comparisons on cost effectiveness among some programs. Under Title I of the Comprehensive Education and Training Act, for example, earnings of participants were increased by $400 to $800 per year at a program cost in 1975 of $1,700 per enrollment; a relatively good return on the investment. On the other hand, Job Corps programs under Title IV of the Act increased annual earnings of individuals by only $200 to $400 at a cost-per-person of $3,421.


Training enhances the value of a worker to a firm. Another way to provide an employment incentive is to lower the cost of labor to an employer. Serious consideration has been given to two proposals of this type. One is reduction in the minimum wage paid to teenagers (sometimes coupled with a training requirement). Another is to provide a wage subsidy.

If there is a limited number of jobs, these incentives will only determine who will find work, not how many people will be employed. However, when there are vacant jobs such as delivering merchandise a subsidy or minimum rate reduction could increase employment.

One possibility would be a pilot program of limited wage subsidies for teenagers to try to bring down the very high unemployment rate in that group. The annual wage of a full-time employee receiving the minimum wage is now $4,600. The employer's payroll tax contribution for social security and unemployment compensation is now almost 9 percent. In addition, other fringe benefits might cost hundreds of dollars more. A subsidy of $500 for a year to cover these fringe benefits would reduce the effective wage by 10 percent. If the subsidy were paid for the first year of employment for newly hired 16 to 19 year olds, the cost might be $0.5 billion. Another approach would be to forgo both employee and employer contributions to social security for the first year of full-time teenage employment. The employer's cost would then be reduced by approximately $500 while the teenager would receive the same take home pay.

It is difficult to estimate how much additional employment this small subsidy would produce. One drawback to the concept is that there may be an incentive for an employer to hire a teenager and fire him 1 year later. If the employer then hired a new teenager, he would once again be eligible for a $500 savings, whereas if he retained the old teenager, his savings would lapse after the first year. However, it would tend to help the teenager get his first job and it is an approach that merits consideration.

Another approach is a $200 per person-per-month tax credit available to employers who increase their work force. An employer hiring labor at an average wage of $5 per hour would then save $1.25 an hour in unit labor costs. The staff can find no evidence that such a system has been tested in the United States, even on a pilot basis. But, in theory, the subsidy should give employers an incentive to hire. In order to limit the revenue loss, the credit could be phased out over 18 months and the credit could apply only to employees in excess of the average work force prior to the introduction of a tax credit.

In such a system, the direct costs of Federal support to the unemployed would be reduced and the psychological costs of unemployment to many workers and their families could be eliminated. However, the lost revenues could be substantial.

A third alternative is to provide a subsidy for creating a shorter workweek, thereby spreading the burden of unemployment more widely. In some European countries, compensation is paid to workers who work 4 days a week. Other approaches to increase labor force participation or ease the transition from school to work can also be considered. It is important to recognize, however, that these will not be very effective unless the demand for labor is increased.


There are two types of income maintenance programs other than retirement and disability programs. One is unemployment compensation, a temporary payment based not on need but on previous work experience and earnings. The second is welfare-food stamps, AFDC, Medicaid, and other semi-permanent income maintenance programsbased mainly on need, not on employment experience. Some families or individuals may be eligible for both types of assistance. The government may spend $199 to $231 billion for these programs over the next 5 years. (See Table 9.)

Spending for non-retirement income transfer programs fluctuates during the business cycle, partially offsetting swings in economic activity and individual income. HEW estimates 35 percent more beneficiaries and (because the benefit per person for some programs increases with reduced income) a 71-percent higher cost for cyclically sensitive transfer programs in the fourth quarter of 1976 because of the recession.6

Several major concerns have been voiced with regard to these programs. - Is the patchwork of income support programs adequate to

provide a decent standard of living for those who cannot work? -Do the programs provide equal treatment to those in similar

circumstances? -Does income maintenance create disincentives to work? The circumstances of 1975 added one further question: --can State and local governments in areas of high unemployment

maintain the fiscal capacity to shoulder their share of this

income maintenance burden? * HEW, Technical Analysis Paper No. 7, “The Cyclical Behavior of Income Transfer Programs: A Case Study of the Current Recession."



[In billions of dollars]

[blocks in formation]

198. 7

Subtotal, Path A.--- 39.0 38.0 35.9 37. 7 41.3 45. 8
Unemployment compensation:

Supplemental benefits---- 16. 4 16. 1 16.5 16. 1 15. 8 15. 0
Regular programs.

3. 5 3. 1 2. 9 2. 7 1.7 0.8 Public assistance (AFDC)---- 5. 8 6. 5

7. 0 7. 5 8.0 8. 6 Food stamps.

5. 9 6. 7

7. 5 8. 5 9. 4 10. 4 Child nutrition and other food. 2. 7 3. 4 3. 6 3. 9

4. 1

4. 3 Housing assistance

2. 6 3. 1 3. 9 5. 1 6. 5 8. 0 Medicaid 3

2. 1 2. 4 2. 6 3. 0 3. 2 3. 5

79. 5 11. 2 37. 6 42. 5 19. 3 26. 6 14. 7

[blocks in formation]

1 Calculated from data supplied in CBO, “Staff Working Paper for 5-Year Projections, 1977–81."

2 While these programs aid mostly employable individuals or family heads, some recipients are incapacitated and unable to work. Also, some able-bodied parents must care for young children if adequate child care is not available.

These outlays are one-fourth of the Federal share of medicaid; the remainder is spent for the aged, blind, and disabled.


Many persons hesitate to look for work or accept a job if the takehome pay-salary net of work expenses, taxes, and the loss of income maintenance benefits-is too low. For example, the earnings limit which is linked to social security payments discourages employment for the elderly while a lack of day-care facilities and the cost of those that are available reduces female employment. In addition, the design of unemployment compensation and welfare programs may reduce work effort because benefits are reduced as income rises.

In some cases, reducing the disincentives may increase measured unemployment during a recession. Removal of the disincentives, however, may be a clear addition to the social welfare once high employment rates are restored.

er than

In the customer regels and extended periodo O BAT LETES I ES plosmelt. Some per rico Oto De Cristo search was not à con ra 10-11. DATESion. A more serious is the remote io 1997:

Erent ue* & job word m15 SCRETET DIT LE werpiopubert Tore puss

Trent compensati. KETO Caerei is rigeneris one reasi. íor tit A "TULEE o ress:3:33 25weekertension OS-EFE***8*15. ALLESTE ke tempiormert com top tojás ÉTTEOTTEIT LEI meansteate One wymiare to by Duit Doru Tato colect) raizer thai mase. Otizione borza:: see 4. ExTEXSIOR AXS PITSION OF TYPOTXENT COMPENSATION

Tie Ext 1077 tarihin ei pois basi-require & promater $19.25 Jeforei cocon

Curreser Se merita sare depleted and Federa. Joacitate bees éreces 10 bacisin tbe jcricity of programir. Site: wie is its best wish and Prze.

St12 $5.5 is S! 1976 and it is anti e ritraten & Socoris): w be required in fica 1977. Te

Arants and an incresse in uremPoet inste tases to eimingeidéirind des. The proposed increase in the Dayton, Iowererwoesse labor costs and thereby i crease urari rent sritte imajo iste.

The rassire unermesi whico arcomraried the 1971-75 recessos led to an ertes of the macom irerance eligibility period from 26 to 65 reeks under Feders! Sarreren aty Benefits FSB program. In addition, Special Username: Assistance STA was made avalable for workers who were not normas corered by unemployment insurance. The estimated cost of the latter program, including 26 weeks of benests at the same level as that of unenployment insurance, is $1.3 bilion in fscal 1976.

Lerels of unemployment insurance benefits and the special program differ in benefit payments from Siate to State: these programs proride 50 to 67 percent of the arerage gross weekly wage of manufacturing employees in the various States, up to some limit. Howerer, since wages are subject to social security and income tax withholding while unemployment benefits are subject te neither, unemployment benefits generally replace between 60 and so percent of lost net income for workers making less than the limit.

If lost fringe benefits are taken into account, howerer, replacement rates are overstated.

The system provides two distinct kinds of services for the unemployed. In the case of an employee who is cyclically or seasonally out

? For an analysis of this issue see Stephen T. Varston, “The Impact of t'nemployment Insurance on Job Search” and the ensuing discussion in Brookings, Papers on Economic Activity 1975:1, pp. 13-60. See also Martin Feldstein's report, The Importance of Temporary Layoffs: An Empirical Analysis,” in the 1975:3 issue of the Brookings series.

8 All budget figures in this section are based on CBO Path B, Five-Year Projections.

« PreviousContinue »