Public Labor Exchange Programs in the 2017 Budget

Funding an Honest Broker to Connect Workers with Jobs

Over the past few weeks, we’ve blogged about the unemployment insurance (UI) aspects of the Obama administration’s FY 2017 proposed federal budget. This final blog will focus on budget proposals regarding our core U.S. employment service (ES) program.

The ES program provides job search assistance, job placement services, and other employment services to individuals looking for work and employers with job vacancies. The public policy debate regarding this program is largely about the quality of employment services and the degree to which in-person services should remain a key part of ES. Naturally, cost is part of the debate; namely, is further investment in ES worthwhile? The hope here is that readers will better understand the importance of ES programs, principally funded under the federal Wagner-Peyser Act, and the direction that progressive change should take.

A Tool to Tackle Low Labor Force Participation

ES makes up a labor market institution called a public labor exchange. Public labor exchanges have long served the role of an honest broker; that is, a “labor market neutral” mandated to assist all comers. Central to the honest broker role, ES uses public employees covered by civil service protections. All countries with advanced economies have public labor exchanges. The United States does not invest in ES and related programs as much as countries that focus more on actively assisting jobseekers with their reemployment needs. (For excellent background on ES, see this Congressional Research Service report and an Upjohn Institute report.)

Although the labor market has dramatically changed since the Wagner-Peyser Act passed in 1933, the ES program remains highly relevant today, as labor force participation remains low. Several factors contribute to this lower level of labor market participation:

  1. Long-term unemployment remains elevated, with 27 percent of jobless workers unemployed for 26 weeks or more in the February BLS jobs announcement. Many veterans are having difficulty finding jobs, and so are older workers who’ve joined the ranks of the long-term unemployed.
  2. Unemployment levels among people of color, especially younger workers, remain extremely high.
  3. With today’s state UI programs providing very poor protection for jobless workers, jobseekers are compelled to find jobs quickly or face poverty, perhaps dropping out of the labor market.
  4. There are more involuntarily part-time employees in our labor market who want full-time work. These issues are among those for which the OECD recommends labor market programs as “essential to foster more inclusive and resilient labor markets.”

Funding for ES and reemployment services for UI claimants has remained flat in terms of nominal dollars and declined in terms of real dollars since the mid-1980s. The central mystery for informed observers in the United States is why ES programs that help workers find jobs and employers fill vacancies would suffer from this indifferent treatment. A very, very short answer is that state ES agencies are political orphans. They are principally funded by Congress through funds paid by employers under the Federal Unemployment Tax Act. But they are officially part of state governments while operating in an environment where local workforce agencies predominate. In addition, the main customers of ES—UI claimants, jobseekers, and smaller employers—have low public visibility and little political power. Finally, the entire program costs less than $1 billion a year and rarely draws public attention or policymakers’ concern.

The role of ES as an honest broker of job referrals and placement services is largely ignored in policy discussions. Other contemporary labor market intermediaries, such as temp firms, online job-finding tools, college counselors, and headhunters, have incentives other than linking jobseekers with employers who can use their skills and experience. For readers concerned about jobseekers getting left behind in our current labor market, ES should be understood as a tool to deliver programs to veterans, young workers seeking a first job, and long-term jobless workers.

Budget Proposals for Strengthening Employment Services

There is considerable evidence that the core public labor exchange/job-matching function of ES remains a cost-effective public service, especially when focused on UI claimants. In particular, new studies using data from Nevada, where state ES staff led the local delivery of both reemployment services and UI eligibility reviews, showed that job-counseling shortened unemployment spells and produced better job-matching when compared to those claimants not receiving services.

In response to these studies, federal funding for these UI-focused reemployment services was increased to $80 million in FY 2015 and $115 million in FY 2016. For FY 2017, there is a proposed increase of another $70.9 million, bringing the total appropriation for reemployment services to UI claimants to $185.9 million if approved. This year’s budget proposal does not break with the historic pattern of flat funding for ES, seeking basic ES grants to states for $680 million, the same level as enacted in the FY 2016 budget.

The administration’s Job Driven Training budget for FY 2017 calls for job-counseling for up to one million more individuals through a “Career Navigator” program. In particular, the Career Navigators are focused on helping three groups of jobless workers: (1) long-term unemployed workers, (2) individuals who have dropped out of the workforce, and (3) involuntarily part-time workers looking for full-time work. For Career Navigators, the administration proposes an added $1.5 billion over five years, or $300 million a year. While there are few details yet available on the Career Navigators program, a 2010 report from the Center for American Progress provides good background. CAP’s report focused on job-counseling for “working learners” and documented the need for these services. Career Navigators should operate as part of ES agencies through local one-stop centers.

For NELP, there is no question that more funding and more in-person services for jobseekers is good policy, a position we laid out in detail in 2012. At that time, building upon a proposal developed by Louis Jacobson for the Hamilton Project of The Brookings Institution, we advocated a total of $1.6 billion dollars in added ES funding under the Wagner-Peyser Act to provide placements, high-quality job search assistance, and pre-training counseling for up to 2.8 million individuals. While a big increase over present levels of ES funding, this level of funding would return support for ES programs to levels found in the early 1980s while providing key services to jobseekers and employers.

Ideally, the United States would have a robust ES program that fulfills the vital honest broker function in our labor market. The goal is an ES that attracts customers not only from populations that are out of work or looking for a first job, but individuals with a job who seek better jobs or those who want to upgrade their skills for jobs down the road. Certainly, the Career Navigators proposal is a step in the right direction, but it does not represent the scale of investment required to realistically address the persistent problems underlying today’s labor market.

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Rick McHugh

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