DANVILLE, Va. (Reuters) - The U.S. may need to overhaul some of its tax and social policies if it is going to draw more workers from the margins of the economy and into jobs, Richmond Federal Reserve bank president Thomas Barkin said on Tuesday.
Lack of medical benefits for lower paying jobs, caps on tax benefits like the Earned Income Tax Credit, and other policies may leave some potential workers feeling better off out of the labor market altogether than accepting a job and facing a “benefits cliff.”
“The incentive structure warrants re-examination,” Barkin said, referring to a range of programs that are designed to help the poor but may also discourage work.
“If you aren’t working and are receiving Medicaid, it doesn’t sound very appealing to take a low-wage job that doesn’t offer health insurance,” Barkin said. The earned income tax credit may help the working poor with its program of refunds at certain income levels, but may also discourage work as income rises.
That and other tax policies “could lead someone to conclude that working isn’t economically worth it,” Barkin said.
His comments at a Danville Pittsylvania Chamber of Commerce conference come at a time of historically low unemployment, but with still elevated numbers of people in their prime working years not even looking for jobs.
Barkin said there are roughly 14 million people who are out of the labor force but not in school or caring for family — a cohort that could boost economic growth if they decided to find jobs. In an economy where there are currently more open positions than people actively looking for jobs, he said bringing in more people from the “sidelines” may be among the surest ways to boost growth.
Beyond benefit policies and longstanding suggestions such as better skill training, Barkin said employers can do more to make jobs more attractive — starting with higher wages but including, for example, efforts to make working conditions better or shaping work shift requirements to accommodate people caring for children, elderly parents or others.
Barkin did not recommend specific policy changes, and also did not comment on the economy or monetary policy in his prepared remarks.
Reporting by Howard Schneider; Editing by Chizu Nomiyama