Looking Overseas for Job-creation Inspiration

National Journal, October 11, 2011. Copyright © 2011 by National Journal Group Inc.

The U.S. job market has shown lackluster growth recently, to put it mildly.

The September employment report, released on Friday, revealed that nonfarm payrolls added just 103,000 jobs last month—not horrific, but still under the threshold economists say they need to cross in order to dent unemployment. The Senate is likely to vote on the job-creation proposals in President Obama’s $447 billion American Jobs Act this week, but the bill’s passage is a long shot.

As they consider the legislation, lawmakers may want to reflect on their counterparts across the Atlantic.

While each economy faces unique obstacles to growth, fellow developed countries like Germany, Denmark, and France have implemented programs analogous to some found in Obama’s jobs bill with success. These include job-search programs accompanying unemployment benefits and stepped-up apprenticeship programs.

Other countries have developed programs not found in the president’s legislation, such as mechanisms to certify workers who have gained skills on the job rather than in the classroom.

Unemployment insurance programs vary widely from country to country. As of 2007, the most recent year for which data was available, the U.S. paid employees 13.6 percent of their previous earnings on average, compared with 24.7 percent in the Organisation for Economic Co-operation and Development as a whole, which counts the U.S. and 33 other wealthy countries as members.

The U.S. also has short-lasting unemployment benefits compared with most of the other OECD members. By itself, this provides a “powerful incentive” for the unemployed to look for their next job, according to Gary Burtless, an economist at the Brookings Institution.

But other OECD countries have deployed different incentives to get recipients of unemployment benefits back to work. Many low-paying jobs in the U.S. pay around the same as the benefits. Other countries have ensured work earnings are higher than unemployment benefits, incentivizing recipients to look for a job, according to Stefano Scarpetta, the OECD’s Deputy Director for Employment, Labour, and Social Affairs. 

Some OECD countries have bolstered their programs to help the recipients of unemployment insurance re-enter the workforce. France and others have made unemployment benefits conditional on searching for a job and participating in re-employment programs. The U.S. has paid less attention to investing in such labor market institutions, Scarpetta said.

He recommended focusing on “training, apprenticeship, and skills” to boost unemployment among the most vulnerable sectors of the population — the young and long-term unemployed. Countries such as Germany and Denmark stepped up their traditional apprenticeship programs in response to the economic downturn. The pumped-up programs have a strong track record of landing apprentices with jobs, Scarpetta said.

The American Jobs Act proposes to do this through new training for the recipients of unemployment insurance — so-called “bridge to work” programs modeled after efforts in Georgia and North Carolina. These programs allow long-term unemployed workers to continue receiving unemployment benefits while they pursue work-based training.

Such training could have secondary benefits, eliminating unwanted social trends such as crime and depression that are associated with high unemployment levels, according to Dimitri Papadimitriou, president of Bard College’s Levy Economics Institute. He called the training programs a “very good idea.”

But Papadimitriou cautioned that without a more general economic recovery, simply training unemployed workers doesn’t guarantee jobs. Others fear it will be difficult to find employers willing to bring in unpaid trainees. They like to maintain control over the hiring process, Brookings’s Burtless said.

It would be more fruitful in the long run to reform the way the U.S. thinks about employment training, he said.

Several OECD countries, including Portugal, have created mechanisms by which workers who drop out of school but gain skills on the job can have those skills certified, making them more attractive to potential employers.

The U.S. places too much emphasis on formal educational credentials and not enough on skills acquisition, Burtless said. A European-style certification program could make on-the-job training more valuable by providing workers with proof that they have a transferable skill.

Such a program runs the risk of locking workers into too-rigid skill certifications, which could harm their ability to appear flexible in a changing workforce, according to Randall Eberts, president of the Upjohn Institute for Employment Research. It would not provide immediate unemployment relief, and it would take time for employers and workers to recognize the value of the certificate, but it could provide a huge help in the long run to a large portion of workers who complete their training on the job, Burtless said.

Some economists were hesitant to make comparisons between the U.S. and the smaller European countries, whose economies operate in a different political environment. And it will ultimately take strong overall economic growth to turn around the labor market. Supply-side changes will have a limited impact without an accompanying improvement in demand, Papadimitriou argued.

But in the end, the point is not that other developed countries have it all figured out—it’s that no one does, and looking at programs that have been implemented abroad can be a useful jumping-off point for discussions of job-creation measures in the U.S.