Federal Policy

Smart Decisions

/ The Old Crank

From a recent Chronicle of Philanthropy profile of the Robert Wood Johnson Foundation’s first vice president for public policy, David C. Colby:

Mr. Colby will split his time between Princeton, N.J., where the fund’s headquarters are located, and Washington, where he’ll work to educate politicians about the foundation’s research and learn how the fund can help lawmakers shape policy. A big focus this year will be on helping the federal government make smart decisions about where it trims spending. (my emphasis)

Interesting that the focus here is on where to cut, not whether to cut. There very well may be some savings to be had in some of the areas that the Robert Wood Johnson Foundation cares about—and I assume they will limit themselves to those things when they make their suggestions as to where to “trim”—but there are still reasonable people who think that any further cuts to federal non-defense discretionary spending is a bad idea, since Congress already cut, in 2012, $1.5 trillion of discretionary spending for fiscal years 2013 through 2022. Three-fifths of that is coming out of non-defense programs, which will shrink non-defense discretionary spending to its lowest level on record as a share of GDP.

Two Points About the Debt Ceiling and Spending Cuts

/ The Old Crank

I don’t know why some people claim that Republicans won’t get specific about the things they would cut from the federal budget. I was glad to see Robert Greenstein address this in the commentary I referenced earlier today:

Some Democrats dismiss the threat that the Boehner rule poses, saying that Republicans ultimately will back off of it because they won’t publicly identify the specific program cuts they would make to produce the savings that would raise the debt ceiling for a reasonable period of time. That view, alas, is mistaken.

To be sure, Republican congressional leaders seem unwilling to propose specific cuts in the two main, popular middle-class entitlement programs — Medicare and Social Security — that would produce large savings over the next ten years. They want Democrats to propose such cuts, or at a minimum, they want to find a way to put some Democratic fingerprints on them.

But, Republican leaders appear more than willing to specify deep cuts in two other parts of the budget — core entitlements for low-income Americans, like Medicaid and SNAP (formerly known as food stamps), and the annual caps on funding for non-defense discretionary programs. The Ryan budget featured trillions of dollars of cuts in these two areas. House Republicans may well try to pass legislation in February to raise the debt limit for a year or so, accompanied by cuts primarily in low-income assistance programs and in the caps on non-defense discretionary programs. They will likely re-pass, in the new Congress, the legislation that they passed twice in the last Congress (most recently on December 20) to cancel the first year of sequestration and replace it with spending cuts that hit low-income programs disproportionately.

I would add that Republicans have supported a specific proposal to cut social security as well, by proposing to switch to chained CPI.  They almost got this during the last round of negotiations with the President, in fact, and I don’t know why it might not be proposed again.

Second point: Republicans thinks the public overwhelmingly has their back on the so-called “Boehner Rule”—that any increase in the debt limit must be accompanied by massive spending cuts.

Immigration Reform and Adult Education Funding

/ The Old Crank

VOXXI on the possibility of immigration reform serving as a lever for increasing the federal investment in adult education:

[A]s talks heat up regarding anticipated immigration reform, the grease used to accomplish such a monumental task will indeed be English adult instruction on a national level.

This is similar to the previous large immigration overhaul in 1986 when $4 billion was earmarked towards states providing English classes. However, [Migration Policy Institute Policy Analyst Sarah] Hooker said whatever reform does happen, plenty of questions remain.

“English classes would likely be an element of any major reform bill,” Hooker said. “The one question would be at what point would someone have to demonstrate English proficiency? Is it going to be at the point of adjusting to a temporary legal status or applying for citizenship or some intermediate point along that pathway?”

I think the biggest difference between now and 1986 is that it is much less likely that an immigration reform bill introduced this year will include any new funds for additional English classes. If anything, we’re more likely to see additional cuts to federal spending for non-defense discretionary programs like adult education later this year. [1]

To me, it would be perverse for a comprehensive immigration reform bill to ignore the dramatic state budget cuts to adult ESL classes in states like California. But it appears Congress is going to be stuck in fiscal austerity mode for some time, and so I’m hard pressed to come up with a scenario in which immigration reform results in a significant new federal investment in adult education.

I’d love to be wrong about this.

h/t @otan

[1] As noted in this commentary by Robert Greenstein, the end-of-the-year “fiscal cliff” budget deal only delayed the scheduled across-the-board sequestration cuts that were supposed to kick in on January 2nd:

Sequestration will hit March 1 unless the President and Congress delay it further or replace it with something else.  Republicans are insisting that policymakers must replace every dollar of across-the-board cuts that’s cancelled with a dollar of spending cuts.  The White House, consistent with its dollar-in-taxes-for-a-dollar-in-spending principle, wants to replace sequestration with a package that includes equal amounts of revenue increases and spending cuts.

Both sides, in other words, have already agreed that additional spending cuts will be on the table during the next round of negotiations, and while this doesn’t necessarily mean cuts will be made to adult education, any non-defense discretionary program is pretty vulnerable as both sides look for things to cut. Further, the likelihood of any increases in discretionary spending for things like adult education seem to me to be pretty unlikely in an environment where both sides are looking for $2 trillion in deficit reduction…

Is There a Better Case for Skills Than the Skills Gap?

/ The Old Crank / 1 Comment

Yesterday, Dean Baker of the Center for Economic Policy and Research posted an article that references an interesting policy brief put out by the Boston Fed on the relationship between unemployment and job vacancies. [1] Both Baker’s article and the brief are more than a little bit wonky, but worth reading, especially if you are confused—as I often am—about whether the oft-cited “skills mismatch” argument helps or hurts our case for greater public investments in job training and adult education.

Also known as structural unemployment, the skills mismatch argument, in a nutshell, attributes our current high unemployment numbers to workers not having the skills that employers need. Baker and others think this explanation for our current unemployment problem is way off base, and he kvetches about this on a regular basis on the CEPR Blog and his own blog, Beat the Press. As he and fellow critics argue, if we were truly suffering from structural unemployment, you’d expect to see big wage increases for those who do have the skills employers need—but that hasn’t happened. Moreover, the increase in unemployment during the recession has been pretty uniform across most occupations and industries, and on workers at all education and skill levels. (In the world that I work in, people often cite the lower unemployment rate for highly educated workers over less educated workers as further evidence of the skills mismatch, but this is actually always the case, and thus tells us nothing about whether or not the economy has a structural unemployment problem.)

Critics of the skills mismatch theory argue that the rise in unemployment is actually due to an aggregate drop in demand across the economy. (Best example of this is the collapse of the housing bubble, which depressed demand for new housing, plus had ripple effects across the economy, as people who lost value in their homes reduced their spending, which leads to businesses contracting and laying off workers.) Their argument is pretty convincing, at least when looking at the economy as a whole.

Getting back to Baker’s post yesterday, apparently Team Structural Unemployment has recently been highlighting an outward shift in something called the Beveridge Curve as a point in their favor. Baker’s post and the Boston Fed brief do a good job shooting down this argument, which I won’t go into here since you can read what they have to say for yourself.

The point is, every time I read an argument claiming a major structural unemployment problem—at least at the macro level—it seems to be pretty deftly shot down by critics.

Nonetheless, I don’t see why the lack of evidence for structural unemployment should diminish the case for job training and adult education as an investment. I suppose that there is a danger that overzealous arguments dismissing the skills gap might suggest to some that there is no point in providing job training or adult education at all, but I don’t think that’s a significant worry. At a city or regional level, I don’t know why some unemployment couldn’t still  be the result of a structural change even if that’s not the case for the country overall. For example, I know when manufacturing abandoned northern New England in the 1990s, new higher-skilled jobs did appear—even if not enough to replace all the lost manufacturing jobs—and these jobs required higher reading and writing skills. And in the comments section to Baker’s post, Bob Spencer argues that while it does appear that the economy is not generating enough jobs (especially good jobs), we do have a “structural” problem that existed pre-recession, noting low graduation rates in Virginia, where he lives. He suggests that there is a shortage of both jobs and a “quality” workforce.

I think that’s about right. On a macro level the numbers aren’t there to support the argument that there is a large-scale structural unemployment problem—at least no more than was the case pre-recession. There was—and is—a lack of economic opportunity for low-skilled workers—one that can be addressed in part by investing in adult education and training. But if the jobs aren’t there, no amount of training will fix that, which suggests that, at best, there are limits to “educating our way” to prosperity, as the Secretary of Education likes to say.

Which is why I wouldn’t mind pivoting away from the skills mismatch argument as a key message in our advocacy. Not because it’s wrong—as I explain above, I don’t see why skill deficits couldn’t still be a factor in certain parts of the country in some situations—but because it’s troubling to me that this argument may play into the hands of those who stand in the way of policies that would benefit low-skilled, low-income adults every bit as much as education and training do, and shift too much of the burden of solving our unemployment problem on the unemployed themselves. As Jared Bernstein, another structural unemployment critic, writes here: “a failure to discern structural impacts from cyclical ones…. allows policy makers to nudge aside weak demand as a key diagnosis and instead blame the unemployed for not having the skills employers need.”

The problem I have with the skills gap argument is twofold: First, claiming—incorrectly—that our unemployment is structural works against the notion of using government spending to generate more demand in the economy. After all, if unemployment is largely due to a skills deficit, and not demand, than increasing demand through government spending won’t do much good. But flat or reduced government spending not only limits potential job growth in the economy, it limits federal spending available for things like… more job training and adult education. In other words, a widespread belief in structural unemployment contributes to the lack of support for increasing government spending, and increasing spending on federal job training and adult education programs is what we are advocating for in the first place.

Secondly, the widespread belief in the skills gap is a distraction from other policies that would make more of the jobs that are available now into good jobs (those that pay a living wage, provide health benefits, etc.). (I would argue, in fact, that a low-skilled worker without a high-school diploma, making minimum wage and receiving no health benefits, might be way better off in the short-term with an immediate wage boost and health insurance than with enrollment in a GED class, even if improving their skills/credentials is likely to increase their long-term economic prospects. More importantly—the economic stability that would likely result from that wage/benefit increase would likely put that person in a better position in the long-term to take advantage of and succeed in additional education/training.)

There is no doubt that there are large numbers of people who would benefit from adult education and occupational skills training, but that was true before the recession caused the drop in demand that is largely responsible for the high levels of unemployment we have today. In other words, the recession doesn’t seem to have exacerbated the structural employment issues that existed pre-recession.

We also know that there is actually a larger set of interconnected povery-reducing policies beyond education and training that impact the lives of low-income, low-skilled adults—and that support overall economic growth as well. Putting aside the skills gap argument, and talking about the need for job training and adult education in terms of increasing economic opportunity and improving the quality of our workforce might be a better way capture all of these interconnecting issues while still being responsive to employer needs.

POSTSCRIPT:

A few months ago, Bernstein suggested a possible way to make the case for skills that doesn’t rely on the notion of a skills deficit:

I still think we’d have a better economy/society with higher levels of educational attainment…I’m quite certain, in fact.  It’s wrong to think that the jobs of the future all will demand wicked high skill sets—we’re going to need lots of home health aides, cashiers, security guards, equipment technicians, child care workers, along with high-end engineers. But to have smarter, better educated people in all of those jobs makes all the sense in the world.  We want our child care workers and home health aides to be highly trained—not as Ph.Ds in robotics, but in their fields.

In other words, it doesn’t necessarily require a skills mismatch economy to make the case for higher skills.

[1] “What Can We Learn by Disaggregating the Unemployment-Vacancy Relationship?” by Rand Ghayad and William Dickens. While issued by the Boston Fed, it’s worth noting that this paper does “not necessarily reflect the official position of the Federal Reserve Bank of Boston or the Federal Reserve System.”