Treasury Secretary John W. Snow and Alan Blinder, an economic adviser to presumptive Democratic Presidential nominee John F. Kerry, come from different sides of the political spectrum. But when each analyzes the weak job market, their conclusions have a lot in common. Each is surprised that employment growth hasn't been stronger, given how fast the economy has grown. And both concur that faster productivity growth, not offshore outsourcing, is behind the lackluster performance (see BW, 3/22/04, "Where Are the Jobs?").
They part company, however, when it comes to how to rev up job growth. Snow stresses the importance of making sure that the economy keeps on expanding strongly. He also talks about the need for tort reform, to help bring down health-care costs. Princeton University Professor Blinder, on the other hand, says the government should consider granting tax credits to companies that take on new workers.
Snow, the Bush Administration's point man on economic policy, and Blinder, a former Federal Reserve vice-chairman who also served in the Clinton Administration, explained their views recently in separate conversations with BusinessWeek Senior Writer Rich Miller. Here are edited excerpts, starting with Snow:
Q: What's going on with the jobs market?
A: Jobs are beginning to come back, whether you look at the household survey [of employment] or the payroll survey. If you go back over the course of the last two years, the household survey has shown a lot of new jobs, whereas the payrolls survey has been much more anemic. One reason is that the household survey picks up self-employment, and, of course, the payroll survey doesn't. And self-employment appears to be becoming a larger part of the total jobs market in the U.S. If we add the self-employment number to the payroll survey, you get a much better outcome, but still not anywhere near the positive outlook we need on jobs.
Q: So why hasn't jobs growth been stronger?
A: The most apparent reason is productivity. It has been running at 40-, 50-year highs for a 3-year period. And that's good news in almost all respects. Higher productivity leads to higher real wages. It makes our firms efficient, so they can compete better in world markets and can become more profitable. And as they're more profitable, they're more inclined to invest and expand. That means jobs. But in the very short term, higher productivity means firms can carry on any given level of output with fewer workers.
Q: What's holding companies back from hiring more workers?
A: It's a combination of things. Firms have been through some tumultuous times over the last four years -- the bursting of the [tech] bubble, the recession, overexpansion, Sarbanes-Oxley [the federal law that mandates more transparent financial reporting], a whole tremendous set of changes. There is some psychological carryover from that. Businesses are more in wait-and-see attitude.
Another factor is what you might call a surtax on jobs that comes from our tort liability system and the effects of that system on health-care costs. If you talk to a small business, a medium-sized business, a big business, they all have a common refrain: The tort system is raising our costs of doing business. It's raising our costs of hiring additional workers. It's raising our health-care costs. It has to be dealt with.
Q: How big of a role is outsourcing playing in the weak jobs market?
A: It doesn't appear to be a significant factor in the overall jobs picture. But whether it's job loss from technology or job loss from higher productivity or job loss from any source, the answer has to be to keep the economy so strong that new jobs are generated. To do that, we have to keep the economy open. What we really can't do is turn our back on what made us great and seek some course of economic isolationism. That would be the wrong path.
And you can't have tax increases. That would be the worst medicine for this economy. It would be devastating and could well stop this good, strong recovery in its tracks.
Q: Do you see a role for specific measures to encourage job creation, like a jobs tax credit?
A: Micro tax measures come up short. They don't get the job done. You put the micro incentive on, it goes off in six months. You might get a short-term spurt. But then what? Then you get a lot of unemployment.
The best thing we can do for jobs is a strong, underlying economy that's growing and making sure people have the job skills for the jobs that will be there. I'm struck by how different the economy is now from a year ago, with very strong growth and all the fundamentals lined up for continued good sustainable growth in the future. And with growth, you've created the conditions for jobs.
Q: But when will the jobs market really turn up?
A: We're getting up close to the point where firms will of necessity have to hire additional people to sustain the growth they see in the demand for their products and services. I don't want to predict what month we'll see the breakthrough on jobs. But I'm very confident that the economy is on a strong upward course, thanks to the President's action on the jobs-and-growth bill last year.We're going to see jobs come back, and come back in real good numbers.
Q: Do you see a big catchup period?
A: Potentially, I do.
Q: Why is jobs growth so slow?
A: This is the flip side of productivity. Productivity has been soaring, so you're not getting any jobs. But that only changes the question to: What in the world is going on with productivity?
A: We're pretty confident that a chunk of this ebullient productivity performance comes from the use of information technology. A little bit of it probably comes from the normal cyclical bounce in the economy. As GDP grows fast, productivity grows fast.
But it also does appear that American businesses are working their work forces harder. That could mean working people faster in the same number of hours or working them more hours. Remember, these days, many more people are salaried workers rather than hourly employees. So BusinessWeek doesn't even think of registering the number of hours you work, and neither does Princeton for me. The government can only make an estimate of that.
Q: And it assumes we're working 35 hours per week.
A: Right. If the gap between 35 hours and what salaried workers are really working is widening that would affect productivity [as measured by the government].
Q: But why are companies working their employees so much harder, rather than taking on new workers?
A: One explanation that has been given is soaring health-care costs. If they can get 60 hours of work out of Rich Miller instead of two people at 30, they only have to buy one health-insurance policy. That's expensive these days.
Another may be that businesses are uncertain about the solidity of economic growth and, therefore, hesitant to invest in new workers. I thought that was a really cogent argument nine months ago. But now it's wearing thin. I'm not sure how much more evidence businesses need. We're now looking probably at the third consecutive quarter of rapid economic growth.
Q: How big of a role is offshore outsourcing playing in the weak jobs market?
A: Jobs have been lost to outsourcing. It's a hardship for the people who lose their jobs. That said, when people have tried to make some estimates of how many jobs may have already been involved, they tend to come up in the hundreds of thousands. I think this outsourcing is going to be a much, much bigger phenomenon as we go through time. But up to now, as far as anybody knows, it's not that large.
Q: So what should government be doing about the weak job market?
A: A number of economists, including myself, are coming to the conclusion that for one reason or another, the market system is not generating enough jobs from a social perspective. Joblessness creates social strains of all kinds. The jobs machine isn't functioning the way it has in the past. That leads me to start thinking seriously that maybe we should distort -- that's the word we economists like to use -- the market mechanism in favor of more hiring.
Q: How do you do that? Through tax policy?
A: Yes. One idea is a jobs credit. You get a tax credit for hiring. Another idea is to pay, for example, part of a company's health-care costs. Suppose we told firms, for the first year or something, we, the government, will pick up 50% of costs of the new employee's health-care policy.
Q: So you don't see a repeat of the '90s, where the U.S. had a jobless recovery, then got down to 3.9% unemployment.
A: I don't know. But let's compare this time to the last jobless recovery. This one is much, much worse. We thought we had a really unusual phenomenon on our hands in the early '90s. And we did. But what we have now dwarfs that. That's what leads me to start thinking about interventions in the market to make it more attractive to hire.
Q: What about the Bush Administration's call for more deregulation and tort reform to help boost hiring?
A: You can always point to some regulations, but I don't see any big regulatory burdens [that are holding back hiring]. The argument is totally unconvincing.