3 Ways Employers and the Government Can Help Save the Labor Market

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You don’t have to look very far to figure out that the U.S. labor market is not truly healthy. Although the headline unemployment rate fell to 6.1 percent in June, the lowest level since peaking at 10 percent in October 2010, most alternative measures of labor conditions show weakness.

According to the latest OECD Economy Survey of the United States, the labor force participation rate declined from 75 percent in 2007 to 73 percent in 2015. The U.S. Bureau of Labor Statistics is more conservative: it puts the current rate at 62.8 percent, down from about 66 percent before the crisis, but the trend is the same. There are fewer people in the U.S. workforce now than there were a couple of years ago.

While a large part of this reduction is attributable to an aging population, other indicators reinforce a pessimistic view. According to the OECD, only 15 percent of unemployed people who find work still have a full-time job one year later, meaning that people are having a hard time actually leaving unemployment. Further, the long-term unemployment rate is still high relative to pre-crisis levels. The average duration of unemployment is still more than 15 weeks, up from less than 10 before the crisis.

But it’s not all doom and gloom. In its June report, the OECD offered ways that employers and the government could help improve the health of the labor market. Here’s a look.

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1. Invest more in training programs

A study conducted by the U.S. Department of Education and the National Institute of Literacy in 2013 found that 14 percent of people in the U.S. can’t read. That’s 32 million people who have limited job opportunities. The OECD found that these people tend to end up in low-paying jobs with little hope of developing the skills necessary to improve their situation.

“Empirical evidence shows that providing jobs with low wages, minimal benefits, little training, short hours and erratic schedules, while helping to keep costs down, is often not a good business strategy,” the OECD said.

To help address this problem, the OECD suggests employers make an active effort to enhance employee skill sets. Even if it means higher costs in the form of tuition reimbursement or on-the-job training, the investments could pay off in the long run due to increased productivity.

One way employers could invest in the labor force is by becoming more involved in the design of training programs, since the employer knows best what kind of skill sets are valuable. Another option is to build partnerships between education institutions and the private sector, with a particular emphasis on those between local employers and community colleges.

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2. Make income tax credits more widespread and increase minimum wages across states

The OECD argues that the federal earned income tax credit could be more effectively used as a tool to encourage work by extending it to more people. The EITC reduces the amount of tax one owes to the state and federal governments and may also give a refund. According to a suggestion made by the OECD, the EITC could be extended to childless workers and non-custodial parents, and the threshold of eligibility could be lowered to 21 from 25.

The OECD points out that increasing minimum wages would also help workers benefit from the EITC more fully. A disturbing observation made in the report was that relative to the median wage, the current federal minimum wage is well below the average statutory minimum wage in OECD countries. While raising minimum federal wages up to $10.10 may reduce employment by approximately 500,000 workers, according to a Census Bureau report released this year, the OECD report suggests the impact may be limited. In fact, increasing minimum wages could help bring about 12 million people out of poverty, according to the OECD.

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3. Maintain a work-life balance

The OECD report suggests that Americans are overworked.

At 1,790, the number of annual working hours in the U.S. is longer than the OECD average of 1,765 hours. Not just that, but the OECD cites studies that have found out that more than 45 percent of men and more than 20 percent of women work more than 40 hours a week. The Fair Labor Standards Act (FLSA) requires that, with some exceptions, employees must receive overtime pay for over 40 hours per week at a rate not less than 1.5 times their regular rates of pay.

Getting paid is one thing, but providing support when employees are going through crisis or medical emergencies can promote loyalty and worker productivity like nothing else can. The OECD contends that American employers rarely allow paid family maternal leave or leave to take care of a seriously ill family member — these policies are completely discretionary, because there is no legal fencing to them. Only 12 percent of employees have access to paid family leave, the OECD points out.

“Lack of effective support is possibly most worrying in the case of leave takers following birth,” the OECD says. A rather risky thing that the report highlights is that many employed mothers, even those who get some paid leave from employers, take less than the 12 weeks of leave that is recommended by the International Labor Organization to safeguard the health of mother and child.

“Evidence shows that paying income support to mothers strengthens their labor force attachment, reduces turnover costs and public assistance, and raises their wages in the long run,” according to the OECD.

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