America Stopped Keeping Up with the Joneses

Workers stand in line at a California unemployment office. Photo: FEMA

ERIN AGNEW, DEFENSE AND DIPLOMACY DIRECTOR

The financial crisis of 2008 left the United States with a national unemployment rate skyrocketing from 4.6% to 10.2% in a matter of three years. Workers from across the country began to struggle to feed their families, make mortgage payments on time, and save for retirement. Congress began to struggle to stabilize the economy, preserve jobs, and stay competitive with our biggest trading partners in the European Union. But as Germany and the US experienced similar GDP growth rates post-recession, Germany’s unemployment rate fell lower than it had been pre-recession, leaving the US to play catch up, let alone keep up.

The first attempted fix in 2008 extended Unemployment Insurance benefits to the newly jobless for a full year and allowed those already receiving unemployment insurance to do so for seven weeks past the original six month period. The bill offered $6 billion of benefits to job seekers, while making a disproportionate $700 billion available in direct bridge loans to banks and automobile manufacturers, to boost domestic manufacturing.Much of this funding went to technological development, though, leaving re-hiring workers out of the equation and actually eliminating future positions even as productivity increased. 

The industries which were offered loans accepted them and maxed out the allocated funds, while unemployment remained consistently high. In fact, recovery from the US’s latest recession and financial crisis has been slower than recovery from any crisis in the nation’s history. After most other recessions, growth in the two years following the recession was greater than the decline from the beginning to the lowest slump of the recession. Studies in 2010 and 2011 suggest that this pattern didn’t repeat in 2009 and 2010 because of insufficient or misapplied stimulus spending, or more intriguingly, uncertainty about economic policy. 

When the EU banded together to address the crisis-exacerbated unemployment rate of 9.7%, it was with a focus on increasing the employment market and worker adaptability. With a series of specific guidelines for different countries’ needs, the EU encouraged all members to “promote innovative forms of labor organization”, “facilitate workers occupational transitions”, and ensure that the “tax burden on the low paid [is] reduced”. In a section focused on improving human capital, the 2008 act encouraged “openness and equality” in educational systems, which are “accessible to all”, and provide “diversity of training opportunities and possibilities for mobility”. In the last two years, 84% of Europeans polled say they are confident they will retain their current job, while 70% are confident they will have a job in two years (this includes those just entering the workforce). 

When applied in Germany, one of the US’s key EU trading and diplomatic partners, the employment policy guidelines did wonders. To address worker adaptability, the Bundestag instituted the policy of Kurzarbeit. Translating to “short work”, it offers job security to workers and lower operating costs to employers. While US unemployment insurance works retroactively to offer financial support approximating a salary, Kurzarbeit pays workers 60% of lost income when hours are reduced more than 10%.  This pay keeps workers in jobs which they sought during better economic times. It increases genuine leisure hours and allows workers to spend time with family rather than working two and three jobs. 

Germany’s current unemployment rate has fallen to 5.2%, while the U.S. still struggles with a rate of 7.3%. And the 5,600,000 Americans who receive unemployment insurance benefits saw their income cut between 10% and 20% during last year’s sequester and halted again during the government shutdown. Germany clearly identified their policy goal as keeping their workers from becoming victims of their economic circumstances. Current US unemployment policy merely purports to sustain workers short term, while they seek out jobs that have not yet been created. 

As it stands, even the assurance of a safety net while seeking employment is in question as the Senate process a bill to extend long term unemployment benefits again. Were US policymakers to take a page out of Germany’s fiscal book, we could see improvements in quality of life and decreases in unemployment overnight. A subsidized salary and limited working hours program like Kurzarbeit would keep workers in jobs and keep productivity high. Redirecting federal funds for corporate research and development towards increasing accessibility to higher and vocational education would help to create a pool of workers equipped to contribute and not overly burdened by debt. Extending unemployment insurance now will keep the bottom from falling out under 5,600,000 Americans. Restructuring the American approach to job security in the coming years could have us caught up, and keeping up with the competition. 

Learn more about the U.S. Unemployment Insurance program and sign a petition urging Congress to extend benefits.

---