U.S. labor‐market data attest to this problem — one that exacerbates job dislocations arising from trade, technological innovation, or any other disruptive but ultimately beneficial phenomenon. Total non‐farm job openings, for example, are at their highest point on record (including well over a million unfilled jobs in “blue collar” fields such as manufacturing, construction, and transportation) and continue to outpace hirings. Workers have recently appeared more willing to quit their jobs and seek others, but the civilian labor‐force‐participation rate has hovered near its lowest point (62.5 percent) since the late 1970s — a problem caused in part by the fact that workers have become less likely to move to areas with better employment opportunities, choosing instead to remain in places hit hard by the Great Recession and to drop out of the labor force entirely.
More‐complex measures of labor dynamism corroborate the aforementioned numbers: The Goldman Sachs Labor Market Dynamism Tracker, which synthesizes various labor reports, shows that, after remaining positive through the 1980s and ’90s, U.S. labor dynamism — the natural, beneficial replacement of old jobs with new ones, owing in part to the willingness of workers to seek new jobs and their ability to obtain them — dove into negative territory in 2001 and has remained there ever since. A recent study by Steven Davis and John Haltiwanger found that the “U.S. economy experienced large, broad‐based declines in labor market fluidity in recent decades,” and that this reduction in fluidity had “harmful consequences for productivity, real wages and employment.”
Some of the troubling decline in U.S. labor dynamism is a matter of an aging work force disproportionately composed of Baby Boomers — older workers are far less likely than their younger counterparts to change jobs. However, three types of distinct government policy failures have amplified the problem. First, state and federal policies prevent Americans from saving enough wealth to cope with unexpected financial calamities or to enable them to take professional risks. Over 60 percent of Americans have less than $1,000 in their savings accounts, and economists on the right and the left agree that our current tax and entitlement policies discourage private savings — unlike, say, those of Canada, which has a highly successful and popular system of tax‐free savings accounts.
Meanwhile, the costs of health care, child care, and education — all highly subsidized, protected, and regulated — have risen far faster than the rate of inflation, and there is little doubt that government intervention has played a role in this trend. The New York Fed in 2015, for example, found a strong link between federal student aid and the skyrocketing cost of tuition. Such cost increases disproportionately harm poor and middle‐class Americans and force them to spend more of their stagnating wages on these essential services — money that could have gone into a savings account. Indeed, the rampant inflation in these sectors stands in stark contrast to the declining prices of other goods, such as clothing, toys, and electronics, that are less subsidized, more open to competition (foreign and domestic), and less subject to onerous government regulation.
Second, government policy actively discourages Americans from finding work in burgeoning fields. Perhaps the most brazen example of such policies is the federal tax code’s business deduction for work‐related education, which permits a worker to deduct education and training expenses from his taxable income, but only if they relate to his current job. Thus, a textilefactory worker can get a tax benefit for new training on the latest garment machine, but he cannot get the same benefit for night classes to become a certified IT specialist. Such a system discourages workers in dying fields from preparing themselves for a new career.
An assortment of other government policies also undermines a worker’s ability or willingness to change jobs. In their aforementioned study on collapsing U.S. labor dynamism, Davis and Haltiwanger identified five specific contributors: employment‐protection laws (which protect employees from being fired because of certain actions or immutable characteristics) that “suppress labor market flows, sometimes to a powerful extent”; laws that erode the employmentat‐will doctrine (which permits employers to fire employees without cause); occupational‐licensing laws and other labor‐supply restrictions; minimum‐wage laws; and the tax code’s preference for employer‐provided health insurance. At the same time, the United States has witnessed a distressing collapse in business dynamism — the creation and destruction of firms — which has had the consequence of entrenching workers in large, existing firms while reducing job openings in new and innovative ones. According to one recent study, a big cause of the recent collapse of business dynamism is the federal government’s response to the Great Recession, which involved “defensive policies to protect large firms and existing employment, rather than proactive policies to encourage entrepreneurship and new venture/job creation.” None of this is good for people looking for a job or considering a career change.
Finally, current government policy has failed to help displaced workers when disaster strikes, and has very likely made things worse. Most notably, the Trade Adjustment Assistance (TAA) program, intended to subsidize U.S. workers affected by import competition, is a notorious failure: Not only are TAA’s costs too high and its eligibility criteria too loose, but multiple studies commissioned by the Labor Department have found that TAA participants are worse off, as measured by future wages and benefits, than similarly situated jobless individuals outside the program. (TAA also breeds the misconception that trade is somehow different from, and worse than, other forms of beneficial economic disruption, such as automation.)
Other federal job‐training programs are similarly inefficacious. A 2011 Government Accountability Office study, for example, found that the federal government had 47 different, often overlapping job‐training programs spanning nine federal agencies at a cost of $18 billion per year. Only five had been subject to any sort of impact analysis since 2004; thus, “little is known about the effectiveness of [the] employment and training programs” identified. A 2014 reform of this system, the Workforce Innovation and Opportunity Act, eliminated 15 programs (while maintaining the rest, despite their long history of subpar results) but failed to impose any sort of rigorous multi‐site evaluation and accountability system. Without these simple reforms, or other, more radical ones, there is no way to ensure that the “reformed” federal job programs won’t continue their long record of failing American workers and taxpayers.
Unfortunately, the private sector has not succeeded where our problematic government jobtraining system has failed, and government policy may actually deter it from attempting to do so. Private‐sector job‐training programs, for example, seem to be disappearing: The Labor Department estimates that “formal programs that combine on‐the‐job learning with mentorships and classroom education fell 40% in the U.S. between 2003 and 2013,” and the 2015 Economic Report of the President found substantial declines in the percentages of American workers receiving employer‐paid training (19.4 percent to 11.2 percent) or on‐the‐job training (13.1 percent to 8.4 percent) between 1996 and 2008. There are legitimate concerns that such programs have simply been sloughed off in favor of ineffective government programs. Tax and regulatory costs might also play a discouraging role: According to one analysis, a $14‐per‐hour worker has a true cost to his employer of almost $20 per hour because of federal and state taxes plus an array of mandated and voluntary benefits and job training. As labor costs continue to rise, companies are more often looking for skilled workers whom they don’t have to train.
Federal unemployment benefits also have the potential to discourage workers from searching for and obtaining a job. Most troubling is the current Social Security Disability Insurance (SSDI) system, which, because of its generous benefits, lax eligibility criteria, and lack of rigorous enforcement, has become, according to the Manhattan Institute’s Scott Winship, “a permanent dole for a rising number of adults with limited earning potential who clearly are physically able to work.” The numbers bear this out: Between 1990 and 2014, the percentage of working‐age individuals who receive SSDI benefits more than doubled, from 2.3 percent to 5.1 percent. Basic unemployment insurance also raises concerns: Four economists examined the effects of North Carolina’s 2013 cuts to unemployment benefits and found that previous benefit extensions had had a significant negative effect on the state’s employment level, number of job openings, and labor‐force‐participation rate — harms that “dominate any potential stimulative effect that some ascribe to such policies.” The same economists found similar discouraging results at the national level.
Free trade — with China or any other country — has demonstrable benefits for American families and businesses. To the extent he denies this, Donald Trump is entirely wrong. However, the economic anxiety propelling Trump reflects very real problems in America’s labor market — problems caused not by Chinese imports or any other type of creative destruction but by multiple government‐policy failures and a resulting collapse of labor dynamism. The solutions to these problems are complex and deserving of substantial debate. But the analysis I have presented should provide some clues. Most simply, U.S. workers should receive the same tax benefit for job training unrelated to their current job as they do now for training related to it. SSDI and unemployment‐insurance eligibility requirements should be tightened and redesigned to ensure that able‐bodied adults are looking for, and accepting, available work. Occupational‐licensing reform should be a priority, particularly at the state level. Federal job‐training programs should be consolidated, if not eliminated outright — perhaps through a simple voucher for dislocated workers to use at accredited community colleges or vocational schools, or a single block grant to states for local experimentation with programs that support, instead of crowd out, private‐sector training initiatives such as apprenticeships.
More broadly, tax‐free savings accounts, similar to those in Canada, also should be explored, as should ways to increase the portability of health care and other benefits currently tied to people’s jobs. (Eliminating the tax preference for employer‐provided health insurance would be the most obvious solution.) Finally, the federal government should more seriously consider, and attempt to rectify, the inflationary harms caused by its subsidization and overregulation of basic essential services such as health care and higher education — opening them to global competition would be a great place to start.
None of these ideas is a silver bullet, but the problems they would seek to address, and the palpable economic anxiety of Americans, clearly show that reform is needed. Protectionism not only would ensure that these problems aren’t fixed but would actually make things far worse.