Addressing structural underemployment (aka mass disability)

Thirteen years after the first crash of the post-disruption era the glory days of 1996 are a fading memory. Most people under 40 do not remember a time of American economic confidence and full employment.

Now, in the early days of yet another post-recession "recovery", even more sluggish than our past recoveries, most college graduates are able to find work . It is often not the work they studied for though ...

College Graduates Fare Well in Jobs Market, Even Through Recession - NYTimes.com

... employers are hiring college-educated workers for jobs that do not actually require college-level skills — positions like receptionists, file clerks, waitresses, car rental agents and so on.... 

Unemployment is also relatively low for the 50+ segment, but when these 'elders' lose their jobs involuntary semi-retirement is not rare.

The greatest problem though is concentrated in the young non-college graduate. That is the majority of young Americans; only 32% of "non-institutional" [1] Americans get a Bachelor's degree or higher, 12% of Americans don't finish High School. "Unemployment" in this population is about 16%, and that counts only those looking for work. Much of that work is minimum wage and at risk for automation. [2]

That's why, when I think about our post-distruption economy, I think in terms of relative disability. For the purposes of a thought experiment,  I'll include in the 'mass disability' cohort anyone who doesn't finish High School, and a third of the people who don't graduate from college. By that rough metric, about 18-20% of young Americans are effectively disabled in the world of 2013. They have the same "zero value marginal product" as the traditional (cognitively) disabled [3].

That's mass disability.

Obviously, a society where 20% of adults are "disabled" is not a long-lived society. In the immortal words of Selina Kyle "There's a storm coming, Mr. Wayne. You and your friends better batten down the hatches, because when it hits, you're all gonna wonder how you ever thought you could live so large and leave so little for the rest of us."

So we need to do better. Today Bernstein makes a stab at the problem ...

Where Have All the Jobs Gone? - Bernstein NYTimes.com

... We also need a significant, permanent program to absorb excess labor (an explicit part of the Humphrey-Hawkins law). We should consider restarting and rescaling a subsidized jobs program from the 2009 Recovery Act that, though relatively small, made jobs possible for hundreds of thousands of workers.

And we have to reassess our manufacturing policy, including reducing the trade deficit. That means both reshaping our dollar policy ....

Finally, financial deregulation has become the enemy of full employment: it funnels capital to unproductive parts of the economy, and plays a key role in the “shampoo cycle” of bubble, bust, repeat. Less volatile capital markets mean fewer shocks to the job market...

In other words

1. Subsidize jobs. This is the traditional approach to employment for the cognitively disabled, though there are many indirect ways to subsidize labor.
2. Devalue the US currency, increase exports.
3. Make Finance a relatively dull and unprofitable business.

That's a good start, but we can be more imaginative. I'd add

1. Study Germany very closely. They take a very different approach to industrial policy and education. We should learn from it. I don't think sending more people to traditional college is going to help.
2. Revamp our approach to education, training, and retirement. Tax wealth and finance to pay for subsidized low cost training programs for a wide variety of skills. Provide low cost loans and scholarships for people of all ages to train.
3. Separate benefits from employment to facilitate movements between jobs and training and employment and non-employment.
4. Create a program of facilitated entrepreneurship - a nationwide small business creation service for people of all ages and skills. (ObamaCare makes this possible.)

Anything else we should try?

See also

Gordon's Notes

• Unemployment and the new American economy - with some fixes 1/2011 and Employment in the Great Stagnation 8/2010. These are two previous versions of this post.
• Managing the Depression: A national small business generation service (again) 8/2011and Gordon's Notes: Antidote to The Great Recession: A national small business generation service. 2/2008. For some weird reason Google steadfastly refuses to index these posts.
• Mass disability goes mainstream: disequilibria and RCIIT 11/2011 - the concept of mass disability is gaining some traction
• Causes of the Great Recession: China, GPSII and RCIIIT. Now for Act III. 4/2010. I started out with a longer list of causes, but by 4/2010 I'd decided the root causes were "the great catchup" and the great slow tsunami of the IT transformation.
• Post-industrial employment: adjusting to a new world 5/2010.
• Baumol's cost disease: medicine, education and post-AI disruption 10/2012 - Baumol's model doesn't get much respect from the economists I read, wish I knew why not.
• On redistribution 6/2004 - I'd forgotten about this Baumol connection.

Other

• College Graduates Fare Well in Jobs Market, Even Through Recession - May 2013 - NYTimes.com
• The $2 trillion shadow economy is the recession’s big winner - April 2013 - Wonkblogs
• Worthwhile Canadian Initiative: Three ZMPs and two Co-ordination failures - Jan 2011
• Plan B - Skip College - May 2010 NYTimes.com
• The Speculist - What if the Jobs Are Never Coming Back? April 2010
• The Atlantic | January/February 2004 | Are We Still a Middle-Class Nation? | Lind Even in 2004 we could see this coming.
• The thinning out of the labor market middle Cowen 4/2013
• The Unsustainable Rise of the Disability Rolls in the United States: Causes, Consequences, and Policy Options 11/2011 - Autor, MIT Press

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[1] This number excludes prisoners, so the real number is less.
[2] Hopefully they are able to earn some money in the 2 trillion dollar underground economy. This is one reason to keep marijuana retailing illegal with minimal enforcement -- it provides a protected labor niche.
[3] College grads now fill unskilled jobs, and unskilled laborer programs are beginning to push out programs for the traditionally disabled...