Saturday, June 25, 2011

A Signing Bonus Instead of Unemployment Checks?

Todd G. Buchholz, a former White House economist, had a huge spread in the Washington Post’s Outlook section recently about his idea of paying people who have been unemployed for 26 weeks to take jobs instead of continuing to draw unemployment benefits. “Will Work for Signing Bonus” contains a number of interesting ideas, and his math appears to compute, but alas, I don’t think Buchholz realizes just how nasty the job market is today. After being unemployed for half a year most people are considered dead meat to potential employers. No offers are being made. Many of the long-term unemployed aren’t even getting interviews, because people who already have jobs are openly preferred. Next come people who have left jobs within the past month or so. People who have been out of work long-term reside at the bottom of the employment heap.

The crux of the problem is most people are not sufficiently humbled immediately after losing their jobs. They don’t grab at the first thing that offers, and in this economy, likely they ought to. If the new job is a poor fit, the person can continue the job hunt from a position of strength—that of being employed. Unfortunately, most people who lose their jobs are in a state of shock when it happens, and they need time to recover. Time is what they don’t have in our fast-changing society. We have so many safety nets, not only unemployment benefits but also credit cards and spouses with jobs, that many recently laid-off workers aren’t quite desperate enough right after the event. They should be. This is a buyer’s market and employers have their pick. A resume is viewed as fresh for a month or so, but after two to three months, the resume is definitely sour. People who lose their jobs should settle for whatever is offered within the first two months, because there may not be any more offers for a long, long time. If ever. I know it sounds awful, but it’s the practical thing to do unless unemployment benefits happen to pay more than the new job would.

Buchholz wants to pay people bonuses to take a job, but impose an enormous penalty if the person quits or changes jobs in under a year. This presumably is to encourage people not to game the system, as has been done with the first-time homebuyers' credit and various other tax advantages. I think it would be more fair to require the worker to pay back the bonus with interest, raising that interest over time if payback is dilatory. Regardless of the details, Buchholz’s idea of giving unemployed people a financial incentive to take jobs instead of extended unemployment benefits is interesting. If it worked, it would save the government money and add to government coffers as the employed person began paying income taxes again.

Should we all rush out and take whatever jobs we are offered? Yes. If the worst your resume shows is a little job-hopping rather than a lengthy period of unemployment, you have a competitive advantage over other job seekers. And meanwhile, you have a job.

With one caveat. This strategy does not apply to low-level retail employment. The field is not stable enough, and your prospects are not good enough, to give up anything to enter it. In many cases, even working full-time at a big box store will not be enough to pay the rent if you previously held a moderately good office job. Also, I've done plenty of tax returns for people who only lasted for half a day at McDonald's or Home Depot. Firing people from these jobs is dead easy and happens all the time. Many out-of-work people are nagged to go work at these places, but accepting such underemployment is a strategy of last resort, to be taken only after all other avenues have been explored, including using up all unemployment benefits, getting a roommate, and selling possessions.

2 comments: said...

Your logic is risk adverse, nothing ventured, nothing gained. For example, the salary you get is directly related to the last salary you had. So, if you were making (for the sake of argument) $100 a week, then were laid off, then took a job making $30 week, your salary for negotiating purposes would be $30, not $100. Ergo, taking any low paying job that comes along fast seriously damages you long term earning prospects. Depending on the segment of the economy you are in, you may be better off holding out for a better offer. There are no free lunches, but one sure bet: if you don't bet you lose. If the segment is drying up, then you may have to accept a lower standard of living.

The article's logic is arguing around structural issues while being nasty. It assumes that steelworker making $60 an hour is overpaid, since he questions whether his skills are worth $60. He also calmly accepts that wages will shrink while the rich get richer. He is also nasty that the laid off working is watching a flat screen TV bought on credit. Yet anyone with a spreadsheet can work out that the amount of consumer spending need to float the economy exceeds what is possible at these wages. Ergo, credit. This is the problem with the economy: more and more people are smelling a rat, they may not be able to find it, but they know it's there. They are less and less willing to work hard fearing the rat will take the proceeds.

Hopeful Lily said...

This is a time to be risk averse rather than overconfident. There are too many people, skilled, experienced, competent people looking for jobs. Compete with them from a position of strength, by being continuously employed.

Generally, when you job hunt, you contact your best prospects first, then your next best, until you exhaust your direct network and have to start putting out feelers to people you do not know at all. If you are offered a job from the first group, the people you already know and have done business with, a job in your field and doing something like the kind of work you previously were doing, why not take it, but negotiate hard for a match with your prior salary or benefits? You're still in a better position with a job than without one. That's the main point I am trying to make. You also can negotiate to start that job in four weeks instead of next week, and in the intervening time keep looking for a better one and take severance pay from your old company. There are many ways to play this if you are already employed or have the promise of employment. There are too few if you are not.