Using Staffing Companies to Reduce Unemployment

June 27, 2012

More than 75 years since the system was created, unemployment insurance is still a contentious issue.  Whether the problem is a lack of available work or the resistance of the unemployed to seek new work, the unemployment system itself seems to be failing to do its job, says William B. Conerly, a senior fellow at the National Center for Policy Analysis.

Notably, it has failed its four primary objectives:

  • The program has failed to adequately address the issue of poverty: although $112 billion of unemployment insurance benefits were paid in 2010, the poverty rate was 15.1 percent, totaling 46.2 million persons.
  • Unemployment insurance has also failed to substantially reduce unemployment, which most recently was pegged at 8.2 percent.
  • The program has also been unsuccessful in reducing the stigma faced by jobless workers -- employers still view the unemployed as less hirable and competent.
  • Finally, though advocates argued unemployment insurance would serve as a countercyclical automatic stabilizer (providing economic stimulus as soon as the economy began to wane) the depth of the recent recession undermines this point.

Studies show that, contrary to popular belief, the primary driver of persistent unemployment is not the unavailability of jobs. Rather, it is the inability of workers to be properly matched with current job openings.

  • The average unemployed person spent just 41 minutes per weekday looking for work in the period between 2003 and 2007, and this may have decreased during the most recent recession.
  • In recent months the new hire rate has been around 3.3 million people per month.
  • The latest data suggest that there are as many as 2.7 million current jobs openings.
  • That the unemployed persist in their joblessness despite the availability of jobs suggests that there is simply friction in the labor market, preventing workers from being matched up with jobs properly.

States should experiment with contracting unemployed workers out to for-profit staffing agencies. These firms, which employ roughly 13 million people annually, have proven their ability to match workers with job openings. States could create varying models of compensation that include payments based on firms' success rate, offering bonuses for helping workers with few skills or little education.

Source: William B. Conerly, "Using Staffing Companies to Reduce Unemployment," National Center for Policy Analysis, June 26, 2012.

For text:

http://www.ncpa.org/pub/st339

 

Browse more articles on Economic Issues