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Washington needs to wake up to the jobs crisis

August 24, 2011, 1:00 PM UTC

Politicians from both sides of the fence have some harsh truths to face about the true state of the nation’s unemployment.

If Obama’s fall campaign to tackle the jobs crisis sounds familiar, that’s because it is. This President has talked about jobs more than 200 times since taking office. He signed an $820 billion stimulus package to buy (mostly public sector) jobs, followed by an $18 billion jobs package lumping construction funds with hiring incentives for small business. We watched the Paul Volcker-led Economic Recovery Advisory Board of 2009 disappear, replaced by the much-hyped Council on Jobs and Competitiveness of 2011, chaired by GE’s Jeffrey Immelt.

There’s not much to show for all that. In the 26 months after the nation’s unemployment rate first breached 9%, it slid back under only twice. Long-term joblessness is especially sinister: Minneapolis Fed chief Narayana Kocherlakota says it is unprecedented in post-World War II U.S. history to have this portion of the population unemployed for more than a year. Meanwhile a quiet cultural crisis brews as one out of five American men stop collecting paychecks — getting by instead on unemployment or disability checks, the incomes of friends and family, and in some cases illicit activity.

The Obama team resists a pro-growth tax and regulation agenda that business leaders insist would give them the confidence to invest their growing profits in an expanded U.S. workforce. But that’s just part of the problem. In any conversation about getting Americans back to work, there are hard — and often politically unpalatable — truths that leaders from both parties first need to face about the state of the nation’s bruised and battered workforce:

• Getting the unemployed re-employed isn’t just about economic growth. There are now 6.2 million Americans (more than 44% of the unemployed) who have been out of work for more than a year — and are dead last on any list of employers seeking to fill positions. These are people whose skills have rusted in a fast-paced global economy, along with twentysomethings who haven’t even developed the habit of work. We risk losing a generation of men and women who won’t be able find meaningful employment ever again.

• Washington spends more than $18 billion a year on 47 different training programs — spread across nine agencies. What has all that bureaucracy and money bought? Employers who complain that they can’t find qualified workers — even in this market (one out of three employers, according to a recent McKinsey Global Institute survey). As many as 3 million jobs in this country are sitting unfilled. There is a sharp disconnect between the skills employers need and what unemployed workers have to offer — and business isn’t doing nearly enough to provide training to close that gap. As Nicholas Pinchuk, CEO of Snap-On Inc., aptly put it at a recent jobs forum, “Business has to enter that fray and define it.”

Safety nets, built to protect people in trouble, are actually contributing to their long-term unemployment — and thereby hurting their job prospects. A study by the Chicago Fed suggests people go back to work — and unemployment drops — when unemployment insurance is set to run out. In fact, some studies indicate that a full percentage point of today’s jobless rate can be attributed to folks who are taking advantage of benefits that enable them to collect checks for nearly two years. The Social Security disability program — intended for the chronically ill — is morphing into a new form of welfare dependency discouraging nonelderly adults from finding jobs.

• This isn’t 1982, when unemployment topped out at 10.8% — a bit higher than the Great Recession’s October 2009 peak. There is no “Morning in America” on the horizon. All signs point to a continued struggle for people who don’t have jobs for long periods of time — leaving a deeper, more indelible mark on our nation’s psyche. Recent studies show that U.S. companies will actually face a talent shortage in 10 years, even as growing numbers of teens drop out of school and millions of once-talented adults fall idle.

Does that mean that we, as a society, have given up on millions of valuable Americans? Is that a question any political leader wants to answer?

This article is from the September 5, 2011 issue of Fortune.