conversableeconomist

If Only the Government Could Wave a Magic Wand and Create Jobs

I\’ve written a \”Commentary\” for Minnesota Public Radio\’s news site, \”If only the government could wave a wand and create jobs.\” You can check it out at the MPR website, with an actual photo of me, or just read it here:

\”If only the government could wave a wand and create jobs\”

by Timothy Taylor

September 15, 2011

Back in 1993 there was a movie called \”Dave,\” which I went to see because it starred Kevin Kline. But for an economist, the ending of the movie was physically painful, because I was rolling my eyes so hard.

In \”Dave,\” an everyday person who looks like the president of the United States ends up through a comic chain of implausibilities actually becoming president. The big end-of-movie wind-up for Kevin Kline\’s \”Dave\” character, acting as the wise and beloved president, is passing a law to eliminate unemployment by having the government guarantee a job for everyone.

You don\’t have to be an economist to suspect that solving unemployment isn\’t this simple. Really? The only reason the United States has unemployment is that we haven\’t passed a law guaranteeing jobs for all? And this great idea of eliminating unemployment by guaranteeing jobs for all hasn\’t occurred to Germany or Sweden or Japan or any other country?

Off the movie screen, incentives and tradeoffs can\’t be ignored. If the government is going to guarantee jobs with wages, it needs to pay for it with taxes, which affects incentives for those who pay current taxes, or with borrowed money, which tends to crowd out private-sector borrowers in the present and also affects the workers who will need to pay taxes to repay that borrowing in the future. Moreover, if you \”guarantee\” a job, what will be the pay and benefits? Is the job permanent? Does the government also pay for transportation and child care? Can the government require that you move to another place to take the job? What\’s the motivation to do the guaranteed job if you can\’t be fired? How will firms react when their current and potential employees can take these government jobs? How do we draw the line between helping those who would be unemployed and turning on a government spending spigot that will be hard to shut off?

Eighteen years after \”Dave,\” I still roll my eyes when people talk as if the government can cure unemployment by passing a law. However, when an economy is sunk in recession, government can help to ease the pain with a combination of temporary spending increases and tax cuts. Thus, although I have I have my quarrels with how the various laws were designed and targeted, I overall supported both the Bush economic stimulus package in 2008 and the Obama stimulus in 2009.

I was predisposed to support at least some of President Obama\’s most recent labor proposals as well, with the unemployment rate still above 9 percent, but the proposals don\’t seem politically serious. When Obama gave his speech last Thursday, exhorting Congress to pass his bill without delay, he had not yet sent Congress a bill.

Then, when the bill arrived early this week, it no longer proposed having the bipartisan deficit commission take the jobs plan into account in its plans to address the deficit in the middle term — as Obama had proposed in the Thursday speech — but instead called for limiting deductions for those with high incomes. I favor raising the tax burden on those with higher incomes as part of an overall medium-term deficit-reduction package. But raising that issue now works against gaining support for an immediate bill to help some of the unemployed.

Ultimately, all of these bills are temporary palliatives–aspirin to dull the pain of a feverish economy. Government-supported jobs and stimulus packages are worthwhile when the unemployment rate is stuck above 9 percent, but they aren\’t a long-run path to lower unemployment. The economy needs hiring by private firms.

A pro-jobs agenda for the long run is a tougher task than waving a \”Dave\”-type magic wand. Some useful steps might include the following:
 
Build a national program of apprenticeships to connect high school students with real-world job skills and possible future employers, as has been done in Germany.

Redesign unemployment and disability rules to encourage employment while still protecting the needy, as has been done in the Netherlands and Denmark.

Overhaul and retarget the 45 or so federal job training programs that already exist. Provide greater support for job search and for moving to take a job.

Other steps would focus on the broad climate for business:
 
Reform the corporate tax code to close loopholes, reduce tax rates and encourage investment.

Make sure that firms are following rules about environmental protection, financial disclosure and safety of workers and consumers, but then get out of the way and let them function.

Take concrete steps to put federal government finances on a sustainable path over the next five to 10 years.

For most of the second half of the 20th century, the U.S. economy could assume, through better and worse years, that many firms would do most of their production within America\’s boundaries. But in the globalizing economy of the 21st century, firms have more choices. The United States needs to rethink and redesign its economic institutions to make itself a more attractive location when firms are deciding where to produce and hire.
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Timothy Taylor is managing editor of the Journal of Economic Perspectives, based at Macalester College in St. Paul. He blogs at conversableeconomist.blogspot.com.

conversableeconomist

Where Will America\’s Future Jobs Come From?

Where will the U.S. jobs of the future come from? The McKinsey Global Institute offers some possibilities in its June 2011 report: \”An economy that works: Job Creation and America\’s Future.\”

McKinsey estimates that the U.S. economy needs 21 million additional jobs by 2020 if the U.S. economy is to have full employment that year. It argues that this goal is achievable if \”high-job-growth scenarios\” are met in six sectors: \”health care, business services, leisure and hospitality, construction, manufacturing, and retail. These sectors span a wide range of job types, skills, and growth dynamics. They account for 66 percent of employment today, and we project that they will account for up to 8 percent of new jobs created through the end of the decade.\”

What do these high-job-growth scenarios look like in each sector? Here are some comments from the McKinsey report, along with some of my own reactions. I also draw on some projections from the Bureau of Labor Statistics, published in the November 2009 Monthly Labor Review, predicting the \”Occupations with the largest job growth\” from 2008 to 2018. I\’ll say up front that while I\’m an admirer of both the BLS and the McKinsey Global Institute, projecting which kinds of jobs will grow in the future is a very uncertain business.
Forecasting the future is hard. But it can still be a useful tool for thinking about the future evolution of the U.S. economy.  

Health care

McKinsey writes: \”The health care sector has been the most reliable engine of job growth in the economy over the past decade, adding jobs even during the recession. Moreover, 71 percent of those employed in the sector have more than a high school education, compared with 62 percent economy-wide, and average wages are 10 percent higher than the national average for service-sector jobs. … Although one-third of health care jobs are in hospitals, the largest job growth over the past decade has been in nursing and residential care, social assistance, and home health care services.\” As McKinsey goes on to point out, with an aging population and expanding insurance coverage, more jobs in this area seem likely.

This makes a lot of sense to me. In the BLS projections, four of the top nine occupations for job growth are in this area: Registered nurses (#1), Home health aides (#2), Personal and home care aides (#5) and Nursing aides, orderlies, and attendants (#9). But a couple of reactions seem worth noting here.

First, the \”health care jobs\” are tending to move away from doctors in hospitals, and toward aides that help at home. I suspect that this trend will continue. A huge share of illness and health care costs are caused by chronic conditions. As the Centers for Disease Control puts it: \”Chronic diseases—such as heart disease, cancer, and diabetes—are the leading causes of death and disability in the United States. Chronic diseases account for 70% of all deaths in the U.S., which is 1.7 million each year. These diseases also cause major limitations in daily living for almost 1 out of 10 Americans ….\” Many chronic diseases share the general property that if they are well-managed every single day, with a combination of drugs, lifestyle, and certain kinds of monitoring of physical conditions, it is possible to reduce the need for enormously costly episodes of hospitalization. Using a mixture of information and communications technology, hooked into medical technology that can be used in the home and personal reminders when needed, seems like a possible win-win-win scenario in term of improving health, reducing health care costs, and developing a new type of industry.

Second, there may be a collision between some steps for cost-cutting in health care and job creation in this sector. In the Spring 2011 issue of my own Journal of Economic Perspectives, David M. Cutler and Dan P. Ly write of  \”The (Paper)Work of Medicine: Understanding International Medical Costs.\”  They emphasize the very large administrative costs in the U.S. healthcare system. They write (citations omitted):

\”For every office-based physician in the United States, there are 2.2 administrative workers. That exceeds the number of nurses, clinical assistants, and technical staff put together. One large physician group in the United States estimates that it spends 12 percent of revenue collected just collecting revenue. Canada, by contrast, has only half as many administrative workers per office based physician. The situation is no better in hospitals. In the United States, there are 1.5 administrative personnel per hospital bed, compared to 1.1 in Canada. Duke University Hospital, for example, has 900 hospital beds and 1,300 billing clerks. On top of this are the administrative workers in health insurance. Health insurance administration is 12 percent of premiums in the United States and less than half that in Canada. International comparisons of medical care occupations are difficult, but they suggest that the United States has more administrative personnel than other
countries do. Data from the Luxembourg Income Study indicate that the United States has 25 percent more healthcare administrators than the United Kingdom, 165 percent more than the Netherlands, and 215 percent more than Germany.\”

In short, vastly improved use and coordination of information technology in U.S. health care, which is desirable on a number of grounds like better coordination of care across providers, would also trim a large number of jobs in the U.S. health care system.



Business services

McKinsey writes: \”Nearly 17 million Americans are employed in business services, making it second only to the government sector in terms of total employment. … [E]mployment growth in the sector was essentially flat for the 2000-2010 decade … Business services include occupations ranging from administrative assistants and janitors to architects and research scientists. The vast majority of jobs fall into two broad subsectors of roughly 7.5 million each: administrative services, and professional, scientific, and technical services …\”
Three of the top eight job growth categories for 2018, according to the BLS, fall into this category:
Customer service representatives (#3), Office clerks, general (#7), and \”Accountants and auditors (#8).

However, McKinsey\’s high-job-growth scenario here depends on a pattern in which U.S. companies decide to do less offshoring of service jobs, and even move some back to the United States. \”In our interviews, companies say they are considering moving service jobs back to the United States, citing concerns over quality, reliability, high turnover, and rising wages abroad ..\” Fair enough. I\’ve read about cases where outsourcing didn\’t work well, too. But on the other side, I suspect that many possible ways of outsourcing business services jobs are only just being discovered. I\’m dubious of a scenario where the U.S. brings home more jobs than it increases outsourcing.

Leisure and Hospitality

McKinsey writes: \”[T]o reach the high-job-growth scenario, the United States needs to retake lost ground in global tourism. While international long-haul travel increased by 31 percent from 2000 to 2009, the number of visitors to the United States dropped. Foreign visits fell from 26 million in 2000 to 18 million in 2003, before recovering to 24 million in 2009. … In particular, the United States is not getting its share of tourism from a rising global middle class. More Chinese tourists visit France than the United States, for example. A weak dollar should help bring in tourists from China, Brazil, India, and other fast-growing economies …\”

By some measures, if one combines both both international and domestic tourism, tourism is the largest industry in the world. Many Americans tend to think of this country as a point of departure for U.S. tourists going elsewhere, not as a destination for the rest of the world. But in a globalizing world, with a rapidly expanding global middle class, we need to rethink the economic importance of tourism.Of course, international tourism is entangled with concerns about preventing terrorism; restrictions on tourism after 9/11 are a major reason for the drop in U.S. tourism from 2000 to 2003. But having people from around the world visit the U.S. is also one of the most powerful steps the United States can take to dispelling myths about this country and to showing how a free and open society functions. Expanding tourism strikes me as both an economic goal, and also an important part of America\’s broader international relations agenda.

Without tourism, this is a fairly low wage area of jobs in areas like food service. According to BLS,
\”Combined food preparation and serving workers, including fast food\” will be the fourth-largest job growth category from 2008 to 2018.

Construction

McKinsey\’s high-job-growth scenario here relies on housing starts returning to their long-term average by about 2014, on additional government incentives for energy efficiency retrofitting, and on expanded infrastructure spending. The BLS lists \”Construction laborers\” 11th among job categories with largest growth from 2008 to 2018. This particular scenario doesn\’t seem all that likely to me. Given very tight government budgets, I don\’t think we\’re going to see a wave of infrastructure spending, nor substantial government incentives for energy retrofitting. I\’m not confident that home-building will be resurrected three years from now.

Manufacturing

McKinsey\’s The high-job growth scenario here is that if a low dollar encourages exports, and if some of the trend to outsourcing is reversed, then \”we can envision a scenario in which manufacturing job losses are much smaller or even stop in the decade ahead.\” This seems to me a fair statement of the optimistic view on manufacturing jobs, but it\’s hard to see a lot of reason for optimism.

There were about 18 million manufacturing jobs in the U.S. in the late 1960s. By the late 1970s, this had climbed to 19.4 million. But manufacturing jobs had dropped to 17.2 million by 2000, before plummetting to
fewer than 12 million in 2009 and 2010. Perhaps a modest bounce-back will occur, but it\’s hard for me to be more optimistic than that.

Retail

This high-job-growth scenario here is based on a revival of consumer spending as the Long Slump of the U.S. economy gradually turns into more of a real recovery. The BLS ranked \”Retail salespersons\” sixth among occupations for job growth from 2008 to 2018.

To me, the future of retail seems very muddled in world where can buy everything from books to a lawn mower to groceries on Amazon, along with any other number of on-line sellers. Businesses are still figuring out how best to integrate bricks-and-clicks, that is, the desire of many consumers to see and touch and talk about many objects before purchasing them, together with the efficiencies of ordering on-line and delivering from a warehouse. I\’m not at all sure how this will work out, but my suspicion is that there may end up being more new jobs in the process of delivering goods from warehouses to people\’s homes, or to a set of as-yet-undetermined safe locations near people\’s homes, than additional jobs in conventional retail positions.

What are other possible options for creating jobs? 

So that\’s the McKinsey list. What else is there? In particular, it\’s intriguing to brainstorm about certain kinds of jobs that are not extremely high on skills (not everyone is going to be a research scientist), but also aren\’t extreme low-wage jobs either. These would be jobs where people learn and develop skills and experience, and perhaps where they can leverage their skills by interacting with information and communications technology. In addition, they should be jobs that can\’t easily be outsourced, maybe because geographically tied to U.S. (like provision of support for chronic health conditions) or maybe because it is not the kind of routinized task where outsourcing works well.

Along with some of my suggestions above, here are three possibilities:

1) Jobs in energy production. I don\’t mean green energy here, which will depend on government subsidies for awhile yet, but rather exploiting oil and natural gas that is now available through technologies like fracking. Of course, there is a political dimension as to how fast this might proceed, or whether it will proceed at all. But there are significant number of fairly well-paid jobs in this industry–as North Dakota is already illustrating.

2) Consumer technology services. Many consumers have lives that are ever-more-full of interlocking technologies. Most of us are happy to use these technologies, but we have little intrinsic interest in hooking them up or debugging them when they go awry. Along with plumbers and carpenters and electricians, the \”home repair\” category may come to include people who can set up, interconnect, and do at least basis repairs on your gear.

3) The next big technology breakthrough. In the last few decades, productivity growth has been built in large part on the technological gains in information and communications technology, and in finding ways to apply those gains across the economy. This branch of technology growth still has a way to run, but it\’s worth thinking about what might come next. Materials science? Biotechnology? Nanotechnology? The key is to have a technology that makes continuing and rapid gains for a long period of time, in the way that electronics has done.

My crystal ball for predicting future job growth is all clouded up. Other suggestions welcome. The U.S. economy needs them.