It's Jobs, Stupid

SAN JOSE MERCURY NEWS, January 18, 2004

"Jobless" recoveries aren't supposed to go on this long.

If the current economic recovery were like most previous ones, businesses would have started hiring again when demand for their products picked up. That hasn't happened, and more than two years after the economy started turning out more goods and services, Americans find themselves wallowing in the most anemic jobs recovery on record.

Productivity is soaring, but that's mainly because fewer workers are doing more. At least 150,000 new jobs have to be created each month just to keep up with the growing population of potential workers. We haven't come close. As we learned earlier this month, the private sector produced a paltry 1,000 new jobs in December.

Not to be ghoulish about it, but this could be good news for Democrats seeking to regain the White House and stem the Republican tide in Congress. There can't be a genuine recovery until jobs come back; jobs aren't likely to roar back within the next nine months; and President Bush could have a hard time convincing voters that he's a good steward of the economy unless Americans feel that the recovery is on solid footing.

But to be credible, Democrats would have to come up with their own plan for how to spur job growth. And that plan has to respond directly to the structural changes in the economy that account for this unprecedented dearth of new jobs -- technology and globalization.

The increased reliance on technology and on global operations has given companies two easy ways to delay hiring. They can substitute off-the-shelf software (automated scanners at the supermarket, for example, or e-ticket kiosks at the airport). Or they can outsource to low-wage workers abroad (such as back-office service workers in India, or manufacturing workers in China).

Eventually, demand will pick up enough to restore job growth. There's still a limit to what software can do and how much work can efficiently be outsourced. But in the meantime, millions of our workers remain unemployed or too discouraged to look for work. Or they have to settle for jobs paying far less than the jobs they lost, or be self-employed ``consultants'' -- essentially, glorified temps. Worse yet, the ``meantime'' could drag on for years. With so many people facing such uncertainties, consumer demand for goods and services may well stall.

Two of Bush's major job initiatives are to gut the overtime laws and to allow more ``guest workers.'' Both will only make the bad situation worse. The requirement to pay time-and-a-half for overtime actually gives employers an incentive to hire more workers. If overtime pay is eliminated, they lose that incentive.

Meanwhile, opening America's borders and otherwise legalizing ``guest workers'' will reduce the demand for Americans to fill those jobs. (The administration's claim that the program will be limited to jobs that ``no American worker is available and willing to take'' is ludicrous on its face. The only reason a job remains unfilled is that it pays too little. An employer who has to fill it with an American will have to raise the wage.)

Here's what I think Democrats should propose instead:

First, level the playing field between technology and labor. In other words, give businesses incentives to employ people, not just technology. As it is now, businesses get an investment tax credit for buying technology that substitutes for labor. One option is to repeal the tax credit, but that would be politically difficult. Another is to give businesses a ``new-jobs tax credit'' (say, 10 percent of the costs) for all net additions to payrolls in the United States. Make it for two years, or until the proportion of employed adults returns to its pre-recession level.

Second, recognize the high social costs of outsourcing during this prolonged jobless recovery. Businesses should still be allowed to outsource; even a temporary ban on the practice would be a nightmare to enforce, would probably violate international trade rules and would drive up consumer prices. But there's no reason businesses should be able to deduct from their taxable incomes the full costs of outsourcing. Limit the deduction to, say, 50 percent of costs.

If they hire American workers, on the other hand, they can continue to deduct the full costs of their payrolls. Here again, make the incentive temporary, until jobs are restored.

Third, buffer workers against income losses. Given that so many workers are having a hard time finding new work, it's only fair that unemployment insurance be extended. In addition, many workers have to settle for jobs that pay less than their former wages. They need wage insurance -- paying, say, half the difference between the old and new wages, for up to two years.

The White House has it all wrong. Yet Democrats need not be neo-Luddites or protectionists to respond to the most anemic jobs recovery in American history. They can offer these three constructive steps to get jobs back faster and, in the interim, lessen the pain.