09/13/2002: "A Prescription for Employment Expansion"
I often hear concerns about the fact that our recent seeming onset of modest growth is not being accompanied by increases in employment. In other words, we’re experiencing a “jobless recovery.”
Why is that occurring? First of all, we enjoyed such a significant economic expansion in the 1990s that some of our inefficiencies were masked by strong revenue growth and a general trend of increasing profits and output per worker. Now that the frenetic pace of the last decade has slowed, firms are beginning to tidy up their operations. The result is layoffs and staff reductions.
A second factor at play in the job situation is the ongoing impact of globalization on several low-tech, low-wage sectors. As trade becomes more open, production will and should gravitate to areas with comparative advantages. Few would regard it as a bad thing that our domestic business complex doesn’t sustain jobs for which the world market wage is less than $1.00 per hour.
A third factor in this mix derives from the sheer strength and endurance of the last expansion. Many sectors, buoyed by low interest rates and Wall Street creativity, as well as by expectations that new capital would be plentiful and good times would last forever, increased their capacity substantially. Some even enhanced their production capabilities at rates well beyond what will be needed in the near future. Thus, when the economy became sluggish, the debt burdens became oppressive.
The tragic events of September 11 also caused additional declines in demand, making the problem even worse and fueling a comparable retrenchment in the retail sector.
So what’s the prescription for expanding job opportunities?
Let’s face it. We are a high-tech, high-wage economy, and we are dependent on global demand for our growth and prosperity. Our ability to perpetually sustain prosperity requires that we constantly discover and implement original ideas.
We must adequately fund and reward the basic research that leads to innovation. The key breakthroughs responsible for much of the economic prosperity of the post-War era originally grew out of government-supported basic research. It is a public good and is essential to our ability to create jobs on an ongoing basis.
Continuing access to the capital resources needed to implement technology, build large plants, and spur a steady stream of investment is vital. And we must have policies to spur investment—investment tax credits, accelerated depreciation, research and development incentives.
In addition, it is imperative that the corporate accountability issue be resolved. It is highly unlikely that corporations will be willing to undertake major investment initiatives in the current environment of market uncertainty. Reliable information is one of the requirements for a market to function effectively. When investors lack confidence in the numbers, they’re not going to put their hard-earned money into the game; at that point, the whole structure breaks down.
Rigorously enforcing existing safeguards is important, of course. Over-regulation, however, is not. Recent reforms and the markets own capacity to discipline companies through the performance of their stock will go a long way toward resolving this issue. It is critical to reassure the investing public that the recent debacle was an aberration and not endemic to the entire market. They must also feel confident that a lot of folks are really trying to get it right.
The final prescription for promoting our high-tech, high-wage economy is adequate education and job training opportunities. While there will continue to be jobs at the low end of the skills spectrum (primarily in the services sector), employment requirements in virtually all industries will increase in the future. In fact, emerging sectors such as biotechnology, nanotechnology, moletronics, genomics, smart materials, alternative energy, and others we haven’t even thought of yet, can only be sustained by highly trained scientists, engineers, and sophisticated technical workers. Federal, state, and local initiatives in this regard must be flexible to meet ever-changing needs.
The methods I’ve suggested are not overnight panaceas, but they do suggest a rational way to have meaningful employment growth and opportunity as our economic engine revs up and moves forward.