from Renewing America

A Bipartisan Twenty-First Century New Deal

May 31, 2017

First year apprentice iron worker pauses during a class at Ironworkers Local 539 in Wheeling, West Virginia. Jason Cohn/Reuters.
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United States

Economics

Labor and Employment

Trade

Technology and Innovation

The challenge of how to help those left behind by rapid economic change—whether caused by technology or global competition—has moved to the center of the U.S. national debate in a way it has not been since the 1930s. Trade competition, especially from China, was a significant factor in the disappearance of nearly six million U.S. manufacturing jobs in the 2000s, and President Trump’s criticisms of U.S. trade policy helped him to victory in November in the Rust Belt states of Michigan, Pennsylvania, Ohio, and Wisconsin.

Despite the White House focus on the issue, however, trade is only a small part of the disruption. Retail industry employment is rapidly shrinking in competition with Amazon and other online retailers, self-checkout machines continue to replace cashiers, and autonomous vehicles will soon come to replace truck and taxi drivers. Technology will leave few segments of the labor market untouched: new computer programs are already replacing some forms of entry-level legal work and investment planning, while machines with rudimentary artificial intelligence capabilities are already writing basic news stories.

In our new Renewing America Discussion Paper, "A New Deal for the Twenty-First Century," we argue that the central economic policy challenge for the United States and other advanced economies is how to prepare the workforce to manage this rapid pace of change. It is far from obvious that there will be a shortage of work—indeed as the population ages, some countries in Europe are already struggling to fill available jobs, and American companies are complaining of growing labor shortages. The problem will instead be to ensure that the workforce is prepared to fill the new sorts of jobs that will become available as consumers redeploy their savings from automation into spending on other goods and services, and that the labor market and public policy are working together to create rising living standards for more Americans.

Young people starting careers should be equipped with the education and skills needed to adapt to multiple job and even career changes over the course of their lives. Older displaced workers will need help to find new jobs, and often alternative careers, that can put them back on a path of rising incomes. There is no other issue on which it is more urgent that Republicans and Democrats find a way to come together than on a “Twenty-First Century New Deal” that helps more Americans find decent work in a time of rapid economic change

The worrisome alternative is that Americans will embrace a still more radical politics that threatens to compound the damage. Already, both parties are flirting with populist “quick fix” remedies. President Trump walked away from the Trans-Pacific Partnership trade agreement—which would have helped many of the most competitive U.S. industries—and is calling for a “massive” renegotiation of the North American Free Trade Agreement (NAFTA) with Mexico and Canada. He has threatened to impose reciprocal tariffs on imports that would raise prices on a wide variety of goods, disproportionately hurting low-income consumers, and inviting retaliation that would harm successful U.S. exporters.

The Democrats have their own quick fix myths. With most in the party having rejected NAFTA and other trade deals, Democrats will hardly be in a position to criticize any new trade protectionism, even if it backfires. One staple of progressive Democrats is the proposal to double the federal minimum wage to $15 per hour, which would boost the wages of some lower-income workers. But such a large jump in the minimum wage nationwide would discourage hiring workers, while encouraging an even faster adoption of automation that would eliminate even more retail and service jobs. Railing away at large banks or the top one percent, however justified, provides good applause lines but does not address the workforce challenge the country faces.

A bipartisan new deal would instead be premised on helping individuals to acquire the education and skills they need to prosper in a fast-changing economy. Washington needs to step up by doing far more to help finance mid-career education and retraining, to remove impediments in the economy that discourage workers from moving to better-paying jobs, and to assist those who are forced to take a significant wage reduction. These propositions should make sense both to Republicans, who stress personal responsibility and hard work, and to Democrats, who believe as well that government has an obligation to offer a helping hand.

The approach would have three pillars:

  • First, Congress should establish lifetime career-training loan accounts for all citizens. These accounts could be used for courses at qualified providers of certificate programs, at community colleges or other educational institutions. To prevent rip-offs, loans could be used only to attend schools that regularly report, subject to audit, their permanent job placement rates. Loans could also cover some temporary income support. Importantly, like many college loans today, repayments of career-training loans would be tied to a percentage of future income. Those who find high-paying jobs would be expected to repay the full loan amount, while those who earn less would repay less. The cost to taxpayers would be modest—the estimated subsidies for income-contingent college loans, for example, is roughly $75 billion for more than five million borrowers over the first two decades of the program, less than $4 billion annually. And that number does not take into consideration the additional tax revenues that will result when many individuals are re-employed at higher salaries.
  • Secondly, governments at both the federal and state levels should do more to help Americans move from regions where jobs are being lost to regions where they are being created. The movement of workers from state to state, once a vaunted feature of the flexible U.S. labor market, is falling. High-wage job growth is increasingly clustered in faster-growing cities, and the U.S. workforce has become less mobile. Government is doing little to help. The Trade Adjustment Assistance program, for example, which assists workers who lose their jobs to trade competition, includes financial support for relocation. But that program only covered 58,000 out of the nearly 8 million people who were unemployed in 2015, and the relocation grants are small, covering only 90 percent of moving costs and a lump sum of just $1,250. Aid for relocation should be universal and more generous, helping all displaced workers who need to relocate to find employment.There are other barriers to labor mobility that should be tackled as well. Occupational licensing is much too restrictive, affecting roughly one-quarter of all jobs in 2016, up from just 5 percent in 1970, according to the Council of Economic Advisers. Many states do not recognize credentials earned in other states. While national certification has gained some ground among teachers, for example, most states require a new certification every time a teacher moves from another state. Such regulatory restrictions are a needless burden on people trying to make a better life for themselves.
  • Third, the reality is that re-training is not going to be attractive or successful for all displaced workers, especially those reluctant to move to where better jobs exist. But the government can play an important role in helping these workers get back into the labor market, even if the new jobs pay significantly lower wages than previous ones. This can be done through wage insurance, which since 2002 has been available to only a small slice of American workers: only full-time employees over the age of fifty with pre-displacement incomes up to $50,000 who can prove their jobs were eliminated by trade. This program should be made universal.In 2016, the Congressional Budget Office (CBO) estimated the current annual cost at just $3 billion; even a huge expansion in wage insurance would not come close to what Washington is now paying people not to work. For example, the percentage of workers receiving Social Security Disability (SSDI) benefits has nearly doubled since 1990; even accounting for an aging workforce, the additional cost to taxpayers for is nearly $50 billion for what has for too many become a permanent unemployment benefits program. Wage insurance, in contrast, rewards responsibility and hard work because, unlike unemployment insurance, it only kicks in when a worker accepts a new job paying less than his or her previous one.

Much like the last time that economic nationalism reared its head in the 1920s and 1930s, with damaging consequences that worsened the lives of most Americans, what is needed now is a new set of policies that lift Americans, without harming the United States’ economic relations with the world. But for either or both parties to embrace this twenty-first-century deal, they need to shed some of their old shibboleths.

For Republicans, it is a way to turn Trump’s rhetorical commitment to the well-being of the working class into actual measures that can help better their lives. So far, the president instead seems to be forgetting those election promises and turning again to the long-standing GOP agenda of cutting taxes on the wealthy and hoping the benefits trickle down. For Democrats, our suggested approach would be a more effective way to help working Americans than the set of policies the party pushed during the last election: the expensive promise of free college education, a nationwide fifteen dollar per hour minimum wage, and opposition to more trade deals.

The goal should be to provide what Americans—especially those who feel left behind by technology, globalization, and the rapid pace of change—have made it clear they want: new opportunities for decent, well-paying jobs of the sort that were once well within reach.

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