DON'T SLOW DOWN THE JOB MACHINE America has churned out record new employment for six years. With most workers doing fine, new efforts to protect them are just what isn't needed.
(FORTUNE Magazine) – STAND BACK -- or the great American job creation machine will knock you down. It is spewing out jobs so fast that more Americans are working than ever before, and unemployment, 5.4% in July, is near the lowest in years. To the wonder of envious Europeans, the U.S. has produced 89% of all jobs created in the Western world since 1980. While European employment has expanded only 1.4% in the Eighties, U.S. jobs have increased 13.2%. Even Japan generated new jobs at only half the U.S. rate. Depending on what measure you use, the total of U.S. jobs created between the start of the current recovery in late 1982 and right this minute is a phenomenal 16 million to 17.2 million. So you listen flabbergasted to the campaign rhetoric about the urgent need for new jobs. Is it the American economy they're talking about? Only slightly less obtuse is the campaign cry that most of the new jobs the nation has created are junk jobs for hamburger flippers and the like. What makes this talk not just bewildering but downright worrisome is that, to fix what isn't broken, people who hold these views -- candidate Dukakis included -- want to reverse some of the very conditions that have yielded such success. How good are the jobs? Says Bureau of Labor Statistics economist Neal Rosenthal: ''The jobs that are growing are the ones that require the most training and pay the most.'' The biggest category is managerial and professional employment. It accounts for 25% of all U.S. jobs, but accounted for 36% of jobs added between 1983 and 1987. An additional 11% of the new jobs were for such skilled and well-paid manual workers as machinists, mechanics, and those in construction trades. Employment for computer programmers grew 19%, for computer operators 53%, and for X-ray technicians 26%. Over nine- tenths of the new jobs are full time. Rising incomes suggest that the new jobs generally pay better than the old ones. Between 1981 and 1986 the real median incomes of full-time, year-round workers rose 3.8% among men and 9.8% among women. A much trumpeted argument holds that good jobs have become so scarce that the middle class has started to disappear. Yet a recent Labor Department study shows that, while the middle class has indeed been shrinking, it largely has been disappearing into the upper class. Using a research version of the consumer price index that reflects the rise in shelter costs more accurately than does the CPI, the study shows that the percentage of families earning over $56,000 in 1986 dollars more than doubled, from 7.5% in 1969 to 15.3% in 1986. The success of American job creation is still more spectacular when you remember that it took place while the economy has had to grapple with two momentous challenges. Starting in the Seventies, when jobs proliferated just as fast as they do today -- and even into the early Eighties -- the economy managed to accommodate the hordes of inexperienced baby-boomers, women included, who were clamoring into the labor market. Then the job engine kept thundering while U.S. business accomplished the vast restructuring needed to meet the much fiercer international competition of the Eighties, intensified by the high dollar of the decade's first half. LITTLE WONDER that such success wasn't won without cost. Who paid? Primarily young workers without college educations, as restructuring cut back the unionized manufacturing jobs that had offered good wages to the unskilled and semiskilled. This group is the Bruce Springsteen generation, often disappointed and resentful, and their changing fate, like any social transformation that marks the waning of a way of life, shocked Americans far beyond the former union strongholds of the Rust Belt. Surprising too is the reactionary nostalgia, among liberals in particular, that seeks antitakeover legislation to halt changes that the whole nature of the modern global economy is ineluctably bringing to pass. Doubting Thomases charge that many of the 16 million or 17 million new jobs are precarious: They'll drop off and blow away the minute the economic winds blow cold. That seems unlikely. Lean, restructured companies have fewer redundant workers to jettison in a downturn. Aha, say critics; but during restructuring corporations invented crafty ways of making employment so detachable that in rough weather packed boatloads of workers can be set adrift instantly, with the corporation not apparently responsible for their fate. Firms hired temporary workers, goes the charge, and spun off in-house service departments, like advertising or data processing, as independent companies. Jobs formerly counted as manufacturing industry jobs thus swelled the numbers of service industry jobs, losing their security in the translation. - Researchers say that the facts largely belie these allegations. Notes Labor Department economist Max Carey, author of a report on temporary employees: ''Employers hiring temporary workers so they would have a contingent work force they could let go in a downturn is something I didn't find a lot of.'' Coming out of the recession of 1982, says Carey, employers did hire temporary workers until the recovery began to look solid. Now, though a small minority of firms still hire them as detachable workers, temps mostly fill in for vacationing employees or help cope with surges in business. NOR DID goods producers hive off service operations in vast numbers, according to Commerce Department economist John Tschetter. Most of the powerful employment growth in companies that provide services to goods producers, about 19% of the total job growth between 1982 and 1986, was a response to new, more complex needs. Examples: data processing, management consulting, engineering. Some doubters worry that service jobs of all kinds -- which account for 105% of the employment growth from 1979 to 1987, making up for drops in manufacturing and agricultural employment -- are inherently insubstantial. Like so much economic Hamburger Helper, they extend the labor force without adding the red meat, goes the theory; they melt away when times are bad. Quite the reverse, finds Geoffrey Moore, director of Columbia University's Center for International Business Cycle Research. Over the past 40 years goods- producing industries have had slightly higher unemployment than service industries in good times, and substantially higher unemployment in bad times. So the shift to services could presage more stability, not less. And job growth itself provides the best possible security. Why has the job dynamo been so successful? No single policy can entirely explain it. Says William Niskanen, a former economist for Ford Motor Co. and the Reagan White House: ''The American economy is a marvelous job machine under a wide range of economic policies, if you don't screw up the labor market.'' For instance, in the Carter era -- despite, or perhaps because of, stagflation -- a highly impressive 8.4 million new jobs were added to the economy. How? Explains Federal Reserve Governor Wayne Angell: ''We used demand stimulus -- rapid money growth and rapidly growing government spending -- to drag the economy to a heavier level of output. And in that environment you ended up getting large numbers of people employed.'' Because tax policies, amplified by inflation-induced bracket creep, decreased returns to capital, corporations met the higher demand not by making productivity-enhancing capital investments but by hiring still more people. That's one reason the U.S. economy managed to enfold the baby boom into the work force so successfully. Europe, by contrast, did not decrease returns to capital and partly as a result failed to employ its baby-boomers when they entered the labor market starting in the Seventies. Under the quite opposite Reagan-era policies of tighter money and slower growth in government spending, the job machine keeps humming along, fueled by the longest peacetime expansion ever, with strong average annual GNP growth of around 3%. Real hourly compensation of workers has been rising since 1981 after having fallen in the previous three years, suggesting, unsurprisingly, that low taxes, deregulation, and limited government interference with markets produce better jobs than stagflation. A firmer brake on spending would have prevented the deficits that intrude the one note of anxiety in an otherwise extremely powerful economy. Comparison of Carter and Reagan policies won't uncover the potent secret of American job creation. But comparison with the European conditions that yielded such negligible job growth abroad will. Some of the key differences are cultural. Says John Llewellyn, an official of the Organization for Economic Cooperation and Development in Paris: ''The spirit of entrepreneurship and risk taking -- particularly at the local and small-firm levels -- has been more buoyant in the U.S. than in Europe.'' In a way that many Europeans are not, and long haven't been, Americans are game to take the chance of starting a new business, or to change jobs, careers, and towns in search of economic opportunity, or to work long or inconvenient hours to increase earnings. BUT CULTURAL differences go hand-in-hand with corresponding institutional and policy differences. The American spirit of enterprise, for example, can draw on a banking system that is still largely local and decentralized, despite the concentration that has begun to occur in the business. Says Llewellyn: ''European bank lending is run by a head office according to stipulated guidelines rather than by an individual bank manager located in the region, who knows his clients well and can assess the riskiness of the operation and the character and plausibility of the person who wants to . borrow.'' U.S. banks also require far less collateral from small business borrowers than British banks traditionally have, for example, thus keeping barriers to business formation low. The combination of small entrepreneur and local banker or venture capitalist undergirds much of the job growth of the last 15 years. It was not the corporate behemoths but small businesses that generated most of the growth. Since 1979 corporate restructuring caused the Fortune 500 industrial companies to shrink employment by 3.1 million, while firms with fewer than 20 employees created about eight million jobs, and companies with 20 to 99 employees created four million. So reports consultant David Birch, author of Job Creation in America. He estimates that fast-growing outfits with more than 500 employees -- including such big service companies as Wal-Mart or the Limited or Federal Express -- contributed between three million and four million of the new jobs, only around a third of what the little guys contributed. Americans going into business to provide services for their fellow citizens account for many of these small new ventures and for a significant fraction of the total growth in service employment. These enterprises range from the man who borrows money to buy a used truck and a bag of tools to set himself up as a locksmith to a person who starts a company to write software for a corporate giant. For example, Joel Gresser, 54, lost his job as a machinist for Allis- Chalmers but with a partner bought a small machining company in Brookfield, Wisconsin, that is doing well. Many baby-boomers and displaced Rust Belt workers have similarly made their own employment instead of waiting for corporate America to do it for them. While manufacturing employment in the U.S. is down a bit from its 1979 peak, in several major European countries it is down sharply. Such job growth as Europe has produced has come, as in the U.S., from the services. But compared to a U.S. surge of 26 million service jobs from 1973 to 1987, a 47% increase, Britain's service employment has risen only 22% and West Germany's a mere 15%. ALONG WITH entrepreneurship, another important reason for this divergence is the American worker's willingness to toil regardless of the hour. Increasingly, stores and restaurants in the U.S. stay open late at night and on weekends, requiring more shifts. Many of their customers are the half of all married women who have children under six and who also work. They're too tired to cook and too busy to shop during traditional working hours. In Europe, by contrast, Maman and Papa still like to close up at six or seven to go home to dinner, and they don't want to hire help to keep the shop open late or on weekends. This limitation of hours, a matter of custom in most European countries, is in Germany a matter of law. Visiting European labor ministers, says Secretary of Labor Ann McLaughlin, often muse about the difference between American and European job growth: ''I've had a couple of them saying in a whimsical way, 'Maybe it's 'cause you're open on Sunday.' '' The flexibility of the American work force, not just with hours but also with wages, permitted the givebacks and two-tier contracts that helped bring U.S. labor costs into line with foreign competitors and saved jobs by putting limping companies back in the global horse race. By contrast, the national contracts that prevail in Europe would almost certainly have prevented the company-by-company wage adjustment recently accomplished, for instance, in the U.S. steel industry. German government officials can even force small or startup non-union firms to comply with the union contract. That would clip the wings of the small, well-run, mostly non-union industrial companies, many in the Rust Belt, that have produced a modest upturn in U.S. manufacturing employment over the past 19 months. However different Presidents Carter and Reagan were in their economic policies, they agreed on this: Neither meddled with the free operation of the labor market. That restraint goes far to explain the cascade of U.S. jobs. By contrast, Europe is a sobering object lesson in how government interference aimed at protecting the worker can end up making him unemployed. High minimum wages and required benefits, for example, cause European bosses to balk at hiring the young and unskilled. Over-rich unemployment compensation gives workers incentives to indolence rather than impelling them to pull up stakes to move to where the jobs are or to try starting a business. Germany, for example, provides a year of generous benefits for every two years the recipient has worked. With these benefits exhausted, a worker whose income falls below a defined limit can receive lower but still relatively generous benefits forever. In Britain you never even have to be employed to collect unemployment compensation. EVEN MORE SUBVERSIVE of employment growth are laws that make laying off workers almost as traumatic and costly as getting a divorce. In some countries bosses have to wait for government permission to do it. In others they must give long notice and often hemorrhage money while they wait it out. In most they must pay hefty severance settlements. Says economist Niskanen: ''They've transformed labor into a capital good in Europe. Once a person is employed there's an implicit or explicit obligation to maintain him indefinitely in the firm.'' That makes European bosses very slow to hire. Says Niskanen: ''They don't hire to meet demand they aren't confident will be sustained.'' Nor are they quick to hire for potentially lucrative, but risky, ventures. By contrast, says George Washington University professor Malcolm Lovell, ''in the U.S., by not making companies keep uneconomic shifts or factories open, we allow failure to take place without undue penalty.'' When a 1986 European Commission survey asked European employers what institutional changes would make them take on more workers than they currently planned to hire, the top responses were what you'd expect: shorter periods of notice for layoffs, simpler legal rigmarole surrounding dismissals, and fixed-term labor contracts. All this is only of academic interest, you say? It would be if politicians in and out of Congress weren't intent on making such European-style intrusions into the U.S. labor market. So-called trade readjustment allowances, for instance, providing extended unemployment benefits to workers laid off due to foreign competition, have tended to operate like European unemployment compensation schemes. Instead of getting workers in shrinking industries retrained and out to another industry, such allowances have encouraged them to wait even longer in the vain hope that they'll get back their vanished high- paying steel or auto jobs. And the ink is barely dry on plant-closing legislation that ominously suggests a trend toward employment-stifling European restrictions on layoffs. These laws are intended to protect workers displaced in the tumult of fast- changing global business. But there is a better way to do that. Now seems an especially appropriate time to restate the lesson of the past 15 years: The best employment security is a dynamic, unencumbered economy that creates lots of new jobs. CHART: NOT AVAILABLE CREDIT: NO CREDIT CAPTION: UNEMPLOYMENT Despite strong economies, the number of unemployed has increased in many developed countries other than the U.S. CHART: NOT AVAILABLE CREDIT: NO CREDIT CAPTION: EMPLOYMENT While the number of employed has grown throughout the major industrialized nations, the U.S. is the new-jobs champ. |
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