Solving the jobs problem: A new kind of unemployment benefit

Photo via Brenda Gottsabend

In the midst of an unprecedented challenging jobs situation and in honor of Labor Day, let’s all come together to discuss new ways to fix our persistent unemployment problem and boost our stagnating economy.

As a small business owner, whose business is to help put people back to work, I’d like to propose a new kind of unemployment benefit that can get people working sooner and help businesses create more jobs.

Government’s Pain

The U.S. economy has lost 7.7 million jobs during this recession. Our government has thus far paid out $671 billion of the total $787 billion stimulus package in the American Recovery and Reinvestment Act of 2009, attempting to trigger economic growth and job creation.

A big part of the stimulus spending, specifically $65 billion to The Department of Labor, has been devoted to updating the skills of workers to meet the needs of today’s businesses.

On top of the $787 billion ARRA spending, the federal government is spending $134 billion this year in unemployment benefits payments, helping million of jobless workers maintain a living.

Even with two unemployment benefits extensions and coverage of up to 99 weeks, hundreds of thousands of the unemployed will soon reach the end of the rope. It’s a ticking time bomb for the social safety net.

Faced with its own fiscal stress, our government’s big spending so far has yet to pay off in either fostering economic recovery or creating jobs. It’s time for something new.

The Pain of the Unemployed

Mei Lu

Workers that were laid off from their jobs in shrinking industries are eager to update their skills. Their only current option is applying for a job retraining grant to attend programs at technical schools, community colleges or for-profit colleges.

In many cases, these training programs and degrees do little to increase their students’ value in the job market. There is often a gap between the true business needs and these programs. In addition, real-world experience is more valuable to employers than classroom experience.

The worst part is that many people go into debt, even after government subsidies, to afford these programs. When they finish these programs and often still find themselves struggling to land a job, not only have they not improved their job prospects, they are in a much worse financial situation.

The Pain of the Businesses 

Businesses are extremely cautious about hiring right now, given the uncertainty of the economy. Based on studies by organizations like Small Business Administration and Kauffman Foundation, young businesses create most new jobs in any economy. But, currently most young businesses are cash-strapped, hindering their ability to create jobs.

Today, early-stage small businesses have little access to the capital they need for growth. Loans are particularly difficult to get for companies in the startup stage. These companies often have much work that needs to be done before making money, but have no money to hire people.

The Solution: Turn Unemployment Benefit into Practical Training Stipend

There is a way to for our government to retrain workers AND invest in businesses without needing any new spending. I’m proposing that our government take current unemployment benefit money and change it to a stipend for practical training.

Businesses, particular small to medium-sized businesses, would be given a yearly “practical training” headcount quota. This quota could be calculated based on the company’s revenue. The lower the revenue, the bigger the headcount. Businesses would be given headcount quota, not money, by the government.

Unemployed workers would receive this “practical training” stipend, instead of their current unemployment benefits, directly from the government. In order to receive it, people would need to apply to and get accepted to practical training work opportunities offered by businesses.

This way, businesses can get human resource investment in exchange for giving jobless workers on-the-job training. Businesses need to woo the unemployed to work for them and, therefore, will create practical training opportunities that will give these workers desirable experiences and help them build marketable skills.

With this form of “human resource” investment, businesses can grow without needing as much capital. This leads to business growth and job creation.

As with the current unemployment benefit, the practical training stipend would be significantly lower than income from their regular jobs. These workers would be motivated to soak up skills and build real world experience. They would want to make themselves marketable and move on into a permanent job as quickly as possible.

This proposed solution is to turn the current spending on unemployment into a new form of investment in businesses. The business community, in turn, would contribute to updating the skills of the unemployed workforce.

Jobless workers would still receive financial support from our government while gaining real-world practical experience. This new kind of cooperation among the government, businesses and the workforce is much more likely to stimulate a quick economic recovery.

Let’s start this kind of win-win-win thinking and work together toward our common prosperity.

To summarize, here is a comparison of the current unemployment benefits system vs. the proposed “practical training stipend.”

Call to Action

I’m not an economist or a public policy maker. This solution may very well be far from perfect. Its purpose is to serve as a starting point for a new conversation and a plan to put our economy on the right track. I hope you will share your thoughts, poke holes at this or propose a different solution.

Mei Lu is CEO of Jobfully, a Redmond Internet startup that helps candidates find jobs. You can follow her blog here.

  • http://www.genivu.com genivu

    This approach is certainly better than what we have been doing, but it doesn’t really increase the number of jobs that are available. I don’t think there are that many jobs that are going unfilled because there are no qualified applicants. If there are, that’s probably a problem with the job descriptions or salary offered and not with the applicants. Individuals certainly should be focusing on improving their position, perhaps using services like Jobfully, but the government should be focusing on increasing the total size of the pie.

    It seems to me a better focus is to help expose what business needs there are that are not being satisfied internally because of budget or time constraints. People who are unemployed would have the time to build those products or services, but they no longer perhaps have the inside connections needed to find out out those opportunities.

    The big problem with running a business on free labor is that as soon as someone gets a real job they leave the work-for-free program and so the business owner has to start over and so ends up losing the time they invested in each person. Its hard to see how the government  could provide financing to that without being ripe for abuse. Perhaps the solution is to provide incentives to the companies that are the potential customers of the venture that pay off if the venture succeeds. The government could provide extended jobless benefits to unemployed marketing people while they put together these projects, and of course those positions would turn into regular paid jobs as soon as private financing or profits become available.

    The only way to pay for this is to cut back on unemployment benefits for people who are not taking very tangible efforts in their job search.

  • http://www.puzzazz.com Roy Leban

    I like the fact that people are thinking about things like this, and I hate to be a naysayer here, but I think the proposed solution is naive. It reminds me of what we hear from so many politicians — a great high-level story with no practical details. The devil is in the details and there are no details. Can this actually work with any job above flipping burgers?

    Most small to medium businesses have no spare time to train anybody for a position, except an entry-level one. Anything above that, they need someone who can do the job when they arrive. If that’s not the case, then even a free employee is a net drain because they make someone else (the trainer) less productive, and it’s even worse with the problem @genivu highlighted — when they have to repeatedly train new people only to lose them.

  • http://blog.CascadeSoft.net @CascadeRam

    I think this is a good idea and this wouldn’t be totally unprecedented either.

    Last year, one of my friends (running a 1-man iPhone dev company) hired an employee/intern for a few months. At that time, the Federal government supported a program where they would pay 50% of the new employee’s salary under certain conditions. I  don’t remember the conditions, but I think that the company was required to pay minimum-wage or better wages on its own (with the government then doubling the pay)

    It worked out well for my friend and I’m assuming it worked out well for the employee as well.

    I think that your proposal may also benefit from a few tweaks. For example, I think that it will be good to make the employer pay some part of the wages. Besides other benefits, it also eliminates the problems associated with “free” and it may help reduce the number of frivolous hires.

  • http://twitter.com/meiiam Mei Lu

    Many good points were bought up by everyone.  Thanks for the great discussion.
     
    @genivu and @RoyLeban, I hear the concern from the businesses’ side that, after they’ve trained someone, only to see them leave.  Since this kind of program should be optional, not mandatory, each business can think about whether it makes sense for them to participate.
     
    However, if we look into this concern a little deeper, we will realize that it wouldn’t be as severe as it seems on surface.
     
    Let’s think about when a trainee would leave the business that has trained him/her.  It would happen when this trainee has generated demonstrable benefits for the business to put on his/her resume.  It’s not likely for someone new to a field to get hired without solid proofs of measurable successes.  By the time this trainee becomes marketable as a paid professional, the business would have already seen the values this trainee created for the business.
     
    Furthermore, if the values this trainee generates for the business can justify bringing the trainee onboard, it would make a lot sense to hire this trainee, instead of letting this trainee go work elsewhere.
     
    Remember, the business also gets to interview and select who they would like to accept into their training program.  When a business see someone with good potential, but without a proven track, this program lets the business take a chance on this worker while putting the least amount of resources at risk.  The business will only hire this worker when it clearly sees that this worker is no longer a “risk” to hire.
     
    @CascadeRam’s story of his friend successfully working with an employee/intern is a good example.
     
    Think about the productivity loss we’re suffering when 1 out 10 workers are sitting idle in this economy.  The need to update the skill sets of a good portion of our nation’s workforce is urgent.  We have businesses actively seeking skilled workers while millions of laid off workers desperately trying to gain new skills and move into growing industries.  The business community can contribute by providing the best training possible - on the job training – for our workforce wanting new skills.  The goal of the proposed program is to minimize the risks to businesses to participate.  Once again, the participation is optional.
     
    At this point of our economy, if everyone still sits back and “plays safe”, we won’t go anywhere anytime soon.  It’s time we all think about what each of us can do in our own way to contribute to the greater good of our country.
     
    I’d love to hear alternative proposals and work together to achieve our common goal – improving the lives of people in our community.
     
    -Mei

    • Mike NavMail

      As an unemployed person this would be an awesome solution *if* we could get the companies who are doing this to accept this kind of training in lieu of a college degree. 

      Example:  I’m a former SDET at a large software company and I got hired back when it wasn’t the piece of paper but what you knew and could do that would get you hired.  Now, many companies won’t look at you if you don’t have a college degree.  Certifications *can* help, but those companies really want a college degree.  Their reasoning?  A college degree shows that you have “stick to it” drive or capability.  I’m sorry, I didn’t realize that 13+ years working for a company, learning the new technolgies and processes as the come along, etc. *didn’t* show that quality.

      I like the idea, really, now if we could just get the business world to say “yes” and then actually do it and hire people who have participated in the program.

  • http://twitter.com/Vroo Vroo (Bruce Leban)

    What makes you think that training money will be spent on training? The record with internship programs suggests the opposite — that companies will exploit the training programs to get cheap labor and then, when a person’s unemployment insurance runs out, they will deem them insufficiently trained to get a full-time job and look for someone new to train on the government’s dime.

    On the other hand, the current unemployment training programs (see http://www.esd.wa.gov/uibenefits/specialservices/training/training-programs.php ) are inadequate. They assume that the worker’s current skills are useless and they should be trained in an entirely new job rather than trained to apply their skills to different jobs or industries. A training benefit like you outline might avoid this problem as employers hiring trainees would probably take their existing skills into account to minimize training costs.

    But how to solve the cheap labor exploit problem? Well, employers could be required to earn the benefit by gainfully employing the trainee after the training period ends. For example, they could be required to pay the trainee $3 for each $1* of training benefit they got. As long as the trainee remained employed, they could stretch out the payment over any length of time. If they terminated the trainee without cause, then they would be required to repay the benefit. There are obviously details to work out here but there needs to be a strong disincentive to trying to exploit those desperate for work.

     **Note: it’s not $1 for $1 because unemployment benefits are about half of normal wages and it’s not $2 for $1 because there should be a penalty for employers not retaining trainees.

  • http://twitter.com/lesaevans Lesa Evans (Caskey)

    I really like this idea on the surface. Just this morning, I was listening to a mid-sized company’s owner talk about how he would like to hire a sales person to try to get out of a slump, but cannot see taking the risks associated with the up-front costs. The program you’ve outlined would be a great remedy for businesses like his. The problem that I see is one of true opportunity. Much like prison labor takes away real jobs, a program like this may well do the same. Perhaps a safe-guard policy around how many times an employer can hire into the same category under the program every 2-4 years would help curtail the inevitable corruption and abuse that goes along with every major governmental initiative.
    Another thought along those same lines would be for a nation-wide internship program that goes along with the training available to people receiving unemployment benefits. Employers would receive part-time labor (carrot) in the form of people currently studying in new areas and as added incentive, would receive a tax break on employment tax for that individual for the first 2 years of full time employment after the internship period. This way, the employer gets the try-before-you-buy incentive, but only 20 hours a week (with a limit of 1 intern per job category) for up to 6 months. The tax break give the same employer a 15-20% discount on the employee for a period of time that would benefit everyone – including the government – in the short and long term.
    This is a GREAT topic – thanks for starting the dialogue!

  • Jenniferjaco

    I love the thinking and collaborative approach here! 

  • http://twitter.com/meiiam Mei Lu

    I was glad to hear the “Bridge to Work” (i.e. an apprentice program) in President Obama’s Jobs Plan last night. 
    Let’s do our part as the business community to help updating the skillset of our nation’s workforce on a massive scale.  Together, we can make it happen.

  • Anonymous

    What about older workers? I have over 26 years of experience and companies are apparently weeding out older workers no matter what. I even heard on a documentary that HR software automatically can weed out anyone over 50 and that’s not smart nor fair but businesses keep doing it. In fact many of the jobs I have applied for and didn’t get, were filled by much younger workers only to see the job advertised again and again over the last year. That’s the definition of insanity. One must realize that older workers, some over 60 will be without unemployment benefits for 4 years before they can apply for Social Security so what’s going to happen to these people during those 4 years? Especially the ones who have lost retirement benefits, savings etc.