For answers to resolving its long-term unemployment problem, the U.S. can simply look to Sweden, a country that has tried many different ideas to create jobs, practically creating a real-world laboratory for testing ideas.
Many economists believe the U.S. should copy Sweden's wage subsidies, an idea they say has been particularly successful. In that program, Sweden funds part of workers' pay, encouraging companies to hire more workers.
Sweden paid half a newly hired worker's wages for six months,
Fortune magazine notes, calling the program "a powerful incentive for employers taking a risk when hiring a new worker."
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"Employment subsidies perform best by far, followed by trainee replacement and, by a long stretch, labor market training," concludes a study by the London-based
Institute for Fiscal Studies that analyzed six Swedish employment programs.
When it comes to improving long-term employment prospects, "job subsidies proved to be an extremely successful measure. Trainee replacement schemes were found to perform rather satisfactorily, while results for all the other programs have been discouraging," according to the paper's author, Barbara Sianesi.
Labor training programs actually decreased odds of finding permanent work, she states, saying they could be used as schemes to continue obtaining unemployment benefits.
Wage subsidies could increase employment and counteract downward wage pressure caused by automation, argues economist Noah Smith on his blog. The subsidies would be better than either the Earned Income Tax Credit or the minimum wage. To begin with, he says, they're automatic, so poor people won't have to make the effort to claim them, a major drawback of the EITC.
"Second, they will probably make people feel more valuable, since people tend to view wages as money they 'earn.' From the worker's perspective, it will just look like wages went up. In fact, a better name for wage subsidies might be 'wage matching.' "
The proposal does have disadvantages. It might be bureaucratically difficult to administer and politically challenging to implement, Smith concedes.
Democrats are unlikely to drop the minimum wage, one of their most popular political issues, and replace it with something that's harder to explain to the public, Fortune points out. Plus, wage subsidies have "the whiff of corporate welfare."
Still, every program has drawbacks, and Sweden's experience shows that wage subsidies are the best tool for lowering unemployment, Fortune argues. "Long-term unemployment has been one of the most painful aftershocks. It's time to try something new."
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