Help Wanted - part two
Although presidents still labor under the threat of Proxmire's ''dynamite,'' notice that he put the emphasis on unemployment, a hangover from the Depression, when joblessness was the primary concern. Today, when growth is the central issue, politicians focus on the number of employed. The two sets of statistics are intimately related, of course, but they often send divergent signals. For instance, while the jobs number is signaling a weak labor market, the current unemployment rate, which is 5.5 percent, has been steadily improving.
The inconsistency arises from the fact that the two statistics are compiled separately. The Bureau of Labor Statistics estimates total jobs by asking 400,000 work sites to report their payroll numbers every month. Like any survey, it is inexact. Meanwhile, a different set of pollsters call 60,000 households and ask whether the occupants are employed, if they have a job, and if they don't, whether they are looking or are on disability and so on. The household survey gives a grainy, close-up view of the labor market that complements the aerial image in the payroll survey.
Lately, the household numbers have been more bullish, perhaps because they alone capture the growing number of self-employed. Predictably, the Bush administration has been stressing that number. But the payroll number is considered more reliable. When the labor market is soft, people tend not to look for work. Officially, they drop out of the labor force and out of the ''unemployed.'' Right now, the two surveys are signaling that the low rate of hiring has turned off workers; people are dropping out. As Joseph Stiglitz, a former Clinton appointee and Nobel Prize-winning economist, says with disgust, ''People have found it's easier to get on disability than to get a job.''
Bush Republicans have a remarkably doctrinaire approach to jobs: cut taxes. It's classic Keynes that releasing money into the economy will give it a temporary jolt, and the Bush campaign, naturally, has highlighted the stimulative effect of the tax cuts. When I visited Bush-Cheney headquarters last spring, Tim Adams, head of policy for the campaign, cheerily asked what I had done with my ''rebate'' check. ''I used mine for a new washer and dryer,'' Adams added, as if to conjure up an image of millions of wage earners descending upon white-goods sales and spurring new jobs. Then, after the bad numbers in July, Bush went scurrying back to Canton, where he rode on a bus with Timken workers and assured a rally, ''Because we acted, America has added 1.5 million new jobs since last August.''
But Bush is only an accidental Keynesian; he campaigned to cut taxes in 2000, when the economy was still growing. R. Glenn Hubbard, Bush's top economic adviser during his first three years and now the dean of the Columbia Business School, emphasizes that Keynesian tinkering was not the administration's aim. ''The president would call when the job numbers came out and ask if there was anything we could do,'' Hubbard recalls. Hubbard urged him not to let short-term numbers throw him off course.
The Bush-Hubbard agenda is a long-term one: to lower tax rates, especially the top marginal rate, which is applied to the highest incomes. The catechism goes like this: lower rates will induce taxpayers to work longer and harder, fueling more investment. That will raise worker productivity, leading to better-paying jobs and possibly to more jobs.
Other things being equal, societies with lower tax rates probably do perform better. But again, tax rates are not the all-powerful jobs lever that Republicans suggest. In the 1960's, the marginal rate was fearfully high -- between 70 and 90 percent -- and employment boomed. Reagan lowered the marginal rate to 28 percent; because the change was so pronounced, it surely had an effect. Doctors had an incentive to treat more patients. But simple math suggests that the Bush cuts, which reduced marginal rates by far less, from 39.6 percent to 35 percent, will not have as big an effect. Those doctors are already working.
What is little appreciated is that low-income workers have not gotten a tax cut over the past 25 years, because the reduction in their rates has been offset by higher Social Security and health insurance taxes. (Such taxes fall most heavily on low-wage workers.) ''The notion that low-wage earners have gotten a big cut -- it simply isn't so,'' says Michael Mussa, a former Reagan adviser. This is no small point. The tax code can be used to tease out more work, but its effects are most striking on lower-income workers, and they are precisely the ones the tax-cutters have ignored.
Democrats have an alternate jobs mythology: that by trimming the deficit, Clinton and his highly visible treasury secretary, Robert Rubin, brought down interest rates, which in turn kicked off the great jobs boom of the 90's. Their detractors correctly note that Clinton and Rubin were very fortunate. The budget benefited from the strong economy, which fueled tax receipts, and from the end of the cold war, which enabled Congress to cut defense spending. At the heart of this debate rests a chicken and egg: did the strong economy produce higher tax revenues and plug the hole in the budget or did Clinton's budgetary discipline ease the fears of an anxious bond market and jump-start the economy?
Since the 90's cannot be rerun, we'll never know. But common sense suggests that Rubin was hardly the only factor influencing interest rates, and interest rates weren't the only reason that the job numbers took off. (After all, rates are even lower today.) As Robert Samuelson pointed out in The New Republic, though Clinton's landmark budget pact occurred in 1993, growth remained modest. It wasn't until 1996, when Internet mania was in full swing, that the economy really started to boom. So it seems reasonable to give credit to Clinton and Rubin for successfully tending the economic expansion, but not for causing it.
Kerry advisers frankly admit that in a long-term sense, they will not be ''creating'' jobs either. Consider Kerry's most sweeping idea: that the government cover 75 percent of the costs of catastrophic illnesses of employees at corporations with health plans. Jason Furman, Kerry's 34-year-old director of economic policy, estimates that it would cut premiums for a typical worker's family by $1,000 a year. Since employers pay the lion's share of premiums, the proposal would save them money. On Day 1, a company like Timken might even be able to afford a larger payroll.
So would a government health plan lead to more jobs? Maybe a few, but private economies have a way of making their own adjustments. According to Furman, since all companies would get the same benefit under the Kerry plan, they would tend to bid up wages and pass the savings to employees. Over time, the workers would pocket the $1,000. Because the Timkens of the world wouldn't be better off, they wouldn't have any reason to expand their payrolls. This is a good example of why it's hard for the government to push the numbers. ''In the short run, you'd create jobs,'' Furman says. ''In the long run, it's more about the quality of jobs.''
The catastrophic care proposal is intriguing; it would definitely help workers, especially lower-wage workers. However, in an economic sense, it wouldn't improve the quality of the job market; it would simply transfer $1,000 per job from Washington.
Since the government can only make so many transfers, the real question is how to prod the labor market so that firms will, on their own, pay better rewards. This is most important for lower-wage workers. Adjusted for inflation, over the last three decades the bottom half of American households have done little better than tread water. Alleviating this nagging problem won't be easy, in part because of America's justly prized flexibility. Elected officials don't like to admit it, but lower wages are probably a price that Americans pay for having more jobs; that is, America's greater flexibility, including its willingness to work for less, results in more work.
There is a highly negative consequence to slow-rising, or ''sticky,'' wages: people get discouraged from looking for work or from working as hard. This is a bigger deal than you might suppose. According to a study by Goldman Sachs, the reason America's living standard has risen relative to Europe's over the last decade is, simply, that we work more. Despite what you may have read about America's vaunted productivity, it is not the reason for our superior performance. Europeans are increasing their productivity -- the output per hour of work -- at a slightly faster rate. But our population is growing faster, and it is aging more slowly, thanks to a greater birth rate and higher immigration. And Europeans simply do not work as long, says Kevin Daly, the study's author. A result of all these factors is that on a per capita basis, Europeans work a startling 28 percent fewer hours. You can call them lazy, or you can say, as an economist would, that they prefer to ''spend'' their increased productivity to acquire more leisure.
Whichever, politicians who want to make America more like itself and less like Europe should be thinking not just about creating jobs but also about policies that would motivate people to seek work -- in other words, expanding the labor force. This is especially relevant now because after rising for four decades, the labor-force participation rate, or the proportion of adults over 16 who either have a job or want one, has peaked. It topped 67 percent in 2000 and has been shrinking for four years. That is the most sustained slump since the early 60's. And when you invert the problem to focus on workers rather than on ''work,'' you arrive at some surprising solutions. It turns out to be a good thing to raise the minimum wage, as Kerry advocates, because people at the bottom will be more interested in working. Well, not so surprising: the minimum wage was raised in the 90's and job numbers soared.
Broadening the earned income tax credit -- a government payout to low-wage workers that, in effect, supplements the minimum wage -- produced a similar effect. In the 90's, when Clinton expanded the credit, the participation rate of female heads of households rose by 15 percent. It's important to distinguish this program from a more traditional entitlement, like unemployment insurance, which provides a bare-bones supplement to people who lose their jobs. Unemployment insurance certainly helps the unemployed, but it does not reduce their number. It simply makes being out of work more palatable. And that is a mixed blessing.
Studies show that people are most likely to find work in the week before their benefits expire and that longer-lasting benefits lengthen the period of unemployment. This is the kind of finding that makes neoconservatives giddy; it demonstrates that the out-of-work (like everyone else) respond to rational incentives. Bush has proposed reworking unemployment insurance, which would allow workers to invest the proceeds in retraining or to keep the balance if they were hired earlier. However, the idea has stalled.
Congress has experimented with another alternative for workers affected by foreign trade. It's called ''wage insurance,'' and it works like this: if you lose a job to imports and you then find a new job at a lower wage, as most displaced workers do, the government will shell out up to half the difference. The point, of course, is to reward people for re-entering the work force. It is still an idea waiting for a constituency. Republicans are disinclined to bankroll a program that smells like an entitlement, and unions are afraid of anything that lessens opposition to trade.
However, in 2002, when Bush was seeking authority to negotiate trade agreements, Democrats (then in control of the Senate) made it conditional on expanding what is called trade adjustment assistance. On paper, what Congress approved was the most exciting reform to hit labor policy in a long time. It coupled wage insurance of up to $10,000 with health coverage, longer unemployment insurance benefits and -- importantly -- retraining and job-search assistance for workers hurt by overseas competition.
Unfortunately, Congress wrote the legislation so ambiguously and the Labor Department has interpreted it so restrictively that wage insurance was effectively stillborn. The application process was forbidding, and only workers displaced by competitors in certain countries and only those in certain industries qualify. If your employer competes with a Chinese firm or if you work in a service industry, you're out of luck. Also, the money allocated for retraining was woefully short.
Opponents of trade adjustment assistance are afraid that the program, if allowed to blossom, could get out of hand. How do you determine if a worker was laid off due to imports or just to bad luck?
Here's an answer: maybe we shouldn't distinguish. Give it to everyone. The amount the United States devotes to the jobless in the form of unemployment insurance is meager -- only 0.3 percent of gross domestic product. (France devotes four times as much, and Germany six times.) Trade adjustment help -- in a nutshell, motivating people to return to work, giving them the necessary retraining and subsidizing their health care along the way -- ''could be a model for the labor safety net of the future,'' says Howard Rosen, an economist who has been lobbying for such changes. At least in theory, luring old workers into new jobs would enhance flexibility and boost participation in the labor force. Get the guy from plastics into genomes. And if it worked for someone who lost his job to Indonesia, why not for a guy on the line at Timken?
Retraining seems to be one of those ideas that is popular at all times except when the president (or Congress) is making appropriations. My hunch is that Reich is correct: for presidents obsessed with monthly job-count numbers, the lead time is just too long. When Clinton took office, Reich was brimming with ideas for turning the local unemployment insurance office into a retraining center. He wanted money for training, health care and education, but the deficit hawks handcuffed him. ''I still feel the same way,'' Reich told me recently. ''By the end of the 90's we had giant surpluses. We could have used some of that. The irony is, those budget surpluses were eventually given away for tax breaks for the wealthy.'' (Under Bush, funds for training were cut by 10 percent.)
To be fair, retraining requires enormous resources as well as patience, and the results are uneven. ''If the investment is so beneficial,'' wonders Cecilia Rouse, a Princeton scholar, ''why don't people do it for themselves?'' One answer is that students at community colleges, where a lot of the retraining occurs, typically are holding down jobs, commuting from home and often raising families. They become overwhelmed.
Retraining works better when the environment is more supportive. Every economist's favorite example is on-the-job training; people seem to learn best when they are working. Another example is the Job Corps, a Great Society program with legs. It takes young adults from the inner city and plunks them into rural centers where they get round-the-clock training in basic skills. A Massachusetts study reported that Job Corps pupils earn $2,200 more a year than peers who don't participate. Finally, there is the armed forces. My 20-year-old cousin just shipped off for Iraq, where he expects to be teaching locals how to set up small businesses. What does he know about small business? He's learning.
The most basic form of job training is education. There is a big paradox here: nothing Bush or Kerry does to boost the level of education will move the job numbers during either's presidency. Yet over the long term, nothing affects the labor market, and the quality of the jobs that it offers, more.
Since World War II, the United States has had a big lead in average years of schooling over other countries. Lately, however, it's been shrinking. Since the wage premium in the United States has been widening -- college graduates are doing better and better, relative to nongraduates -- you would think that more people would be finishing college. But they aren't. This suggests that the area to focus on is primary education. Bush's No Child Left Behind, even if wanting in its implementation, pointed in the right direction.
If the next president wants to make the job numbers in 2012 look better, he could start thinking about all of these: education, comprehensive retraining along the model of the Army and the Job Corps and wage insurance-type incentives. Will this ''create'' jobs? The U.S. economy is a big liner; it isn't easily turned. But thinking in such terms will accomplish more than the never-ending tinkering with the tax code. And it is surely better than the alternatives that try to freeze the economy in place by restricting trade or supporting shrinking industries.
Improving our skills -- perhaps, as Garten suggests, by rethinking the safety net for workers -- seems the only other choice. It's useful to recall that the United States did this at other times when the labor market faced particular challenges: work programs during the Depression, the G.I. Bill of Rights after World War II, the Great Society in the 60's. And if presidents and candidates spoke frankly about the job market, they would admit, as did President Howard Taft two months before he lost the election of 1912, that ''a national government cannot create good times. It cannot make the rain to fall, the sun to shine or the crops to grow.'' At most, a president can help to set the conditions. Investing in workers would be doing just that.
Roger Lowenstein, a contributing writer for the magazine, is the author of ''Origins of the Crash: The Great Bubble and Its Undoing.''
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