In a typical business cycle the long-term unemployed comprise 20-25% of all unemployed. “In recent months, that percentage has jumped to nearly 40% — an all-time record!” writes Cato’s Dan Mitchell. A strong economy is the salve for long-term unemployment. Big government is not. But both sides of the aisle are to blame. “Under both Presidents Bush and Obama, the size and scope of government has expanded, and the United States — which had the world’s third-most free-market economy when Bill Clinton left office — has now dropped to 17th in the Economic Freedom of the World rankings,” Mitchell explains and continues here:
We also need to make sure the unemployed don’t get lured into long-term dependency. One glaring example of misguided big-government policy is the argument to endlessly extend unemployment benefits. That sounds compassionate, but according to economists such policies discourage the unemployed from aggressively seeking new jobs.
There is also persuasive evidence that employers are reluctant to hire people (regardless of any “pledges” they may sign) who have been out of work for lengthy periods, which makes the President’s preferred approach of more unemployment benefits akin to an overprotective parent who hinders a child’s development.
Moreover, Obama’s proposed hike in the minimum wage would actually counteract any good his pledge would do. Why? Increasing the minimum wage is the equivalent of sawing off the bottom rungs on the economic ladder. Simply stated, businesses create jobs when they think a new employee will help the bottom line. Artificially raising the cost of workers — particularly those with marginal skills — is a recipe for creating more unemployment.
The president’s effort to get companies on board with hiring the long-term unemployed should be applauded, but he shouldn’t for one second think that it will solve the problem. In fact, too many of his other proposals would serve only to exacerbate the problem the long-term unemployed are facing. Instead, Obama should take a page out of the Reagan and Clinton presidencies and take action to get to the root of unemployment: economic growth.
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