Jobs: Desperately Seeking Answers

Jobs and the economy are voters' top issues -- but both parties' plans are flawed

Out on the hustings, everybody is talking jobs, jobs, jobs. Democratic front-runner John Kerry has a 10-point plan to boost hiring and revive U.S. manufacturing. North Carolina Senator John Edwards wants to renegotiate trade pacts and reward companies that expand in America. President George W. Bush says his six-point plan, centered on tax cuts, is the best way to replace the 2.2 million jobs lost since he took office. "Empty talk about jobs won't get anybody hired," he shot back, after weeks of being hammered by Democrats. "The way to create jobs is our pro-growth, pro-entrepreneur, pro-small business owner agenda."

Presidential candidates have their ears to the ground, and what they hear is a rumble of fear about the slow recovery in employment. A Feb. 9-12 Gallup Poll found that 41% of Americans view jobs or the sluggish economy as their top concerns -- three times the number for either the war in Iraq, terrorism, or the spiraling cost of health care. Fading hopes for new hiring knocked consumer confidence down to a four-month low in February, the Conference Board said on Feb. 24. "There are real people out there who are really hurting," declares Arizona Governor Janet Napolitano, a Democrat, "and Washington is not coming up with solutions."

Maybe not, but do the Dems have a better plan? Economists of all stripes agree that neither Bush's let-'em-eat-tax-cuts stimulus plans nor the Democrats' proposals -- built around targeted tax breaks and a crackdown on trade -- are likely to lift the trend line for employment much anytime soon. Even in the long term, the parties' differing approaches are more likely to affect the mix of jobs more than the number. "There's a puzzling lack of employment growth for this stage of the recovery," says Harvard University professor Lawrence F. Katz. "But the U.S. still has a dynamic economy that hasn't shown any signs of tipping into a long-run decline in jobs."

PRESSURE BUILDS. For candidates, the long run is the next eight months -- and on that timetable, Bush is particularly vulnerable. He's likely to become the first President since Herbert Hoover to preside over a drop in employment during his term. Offshoring -- particularly the movement of white-collar jobs in software and services to India, Ireland, and other countries -- has boosted anxiety about employment security up the income ladder. A poll released on Feb. 22 by the University of Maryland shows that only 28% of those earning more than $100,000 voice support for actively promoting free trade -- down from 57% in 1999. That erosion among a traditionally Republican group has to be worrisome for Bush.

Adding to Bush's woes: By 51% to 37%, Americans believe that Kerry would do better than Bush at creating jobs, according to a Feb. 10-11 ABC News/Washington Post poll. Nor does the White House's muddled message -- such as its on-again, off-again forecast that the U.S. will gain 2.6 million new jobs in 2004 -- boost confidence. Little wonder that the Bushies are out to undercut Kerry's economic proposals. "John Kerry has said he will raise taxes in the first 100 days of his Administration," says Bush campaign manager Ken Mehlman. "That's a formula for destroying jobs, not creating jobs."

INCENTIVE FORMULA. Kerry figures he has the GOP on the ropes over jobs. He's hitting Bush hardest on offshoring -- an area where the President isn't yet counterpunching. Under current policies, "we actually reward people for taking jobs overseas," the Democratic front-runner tells BusinessWeek. "What I want is to create incentives" to keep employment at home. On Feb. 25, Kerry proposed a package designed to pressure Corporate America to do just that, requiring earlier notification of layoffs, barring tax breaks for companies that move offshore, and limiting government contracting with companies that send work overseas. He has already backed legislation requiring foreign call-center operators to tell customers where they're located.

The incentive formula that Kerry has laid out -- and Edwards largely parallels -- gives government a big hand in targeting job creation and protection. The Dems would repeal Bush's tax cuts for households earning more than $200,000 -- though some in the party say the threshold may be $170,000 -- while leaving lower rates in place for middle-income taxpayers. They would direct the resulting revenues toward "investments" in education, health care, and roads. This fiscal mix "will get the biggest bang for the buck," argues ex-Clinton economic adviser Gene Sperling, since cash poured into wages for teachers and construction workers is more likely to be spent than are tax savings for the wealthy.

Dems would also turn homeland security and energy policy into public-works programs. Kerry, for instance, would give states $50 billion over two years to stem budget cuts in education and health care. He would boost police hiring and pour federal money into equipment for "first responders" -- especially the firefighters who have rallied to his campaign. Kerry also proposes an ambitious bid to make the nation energy-independent by 2015 -- which he claims will create 500,000 jobs. To boost factory jobs, Kerry would offer manufacturers a tax break equal to two years' payroll-tax payments for new hires.

That's all standard Democratic fare. But on trade, the party is rapidly moving away from Bill Clinton's embrace of globalization and toward protectionism. The job migration has Edwards loudly proclaiming his opposition to trade deals that lack strong protections for workers and the environment -- a stance that Kerry, to appeal to industrial-state primary votes, now echoes. Both say they would reopen NAFTA.

Bush is no stranger to targeted tax breaks: His 2005 budget calls for 42 new tax subsidies for everything from health insurance to decommissioning nuclear power plants. But the President is counting on economic growth stimulated by his budget-busting 2001 and 2003 tax cuts to boost employment. The White House also calls for regulatory reform -- most notably, raising the barriers to product-liability and malpractice suits against businesses -- to clear the way for robust, job-creating investment. The Administration decries the Democrats' tilt toward protectionism -- though its own free-trade record is tarred with vote-seeking protections for steelmakers, sugar producers, and cattle farmers.

Faced with Bush's policies and the Democratic Rx, voters have "a choice between atrocious fiscal policy paired with pretty bad trade policy, vs. pretty bad fiscal policy and atrocious trade policy," says Everett M. Ehrlich, director of research for the business-backed Committee for Economic Development. So the agenda of both parties could crimp growth.

MORE DIRECT HELP? Bush's proposal to lock in lower tax rates threatens to balloon the deficit -- already expected to hit $521 billion this year -- even further. That would hasten the day when bond-market investors demand higher interest rates, thus slowing the economy. And Democrats' trade restrictions, if carried out, could curb imports and raise prices for U.S. consumers -- an economic effect that would quickly outweigh any benefit from added wages earned by workers in protected jobs.

In short, the impact of the two parties' policies is unlikely to be much different -- or address workers' anxiety. "We ought to be paying more attention to the costs that are being imposed on individual workers," argues Peter R. Orszag, an economist at Washington's Brookings Institution who has advised Democratic candidates. For example, neither party has endorsed such ideas as wage insurance -- extra pay from unemployment-insurance funds to soften the blow of accepting a lower-salaried job.

Republicans are praying that job anxiety will have quieted down by Labor Day, when voters really start paying attention. "This is a country that's turning around," declares Ohio Governor Bob Taft, a Republican who has seen 160,000 factory jobs vanish in his state since Bush took office. "All of the economic indicators are moving in the right direction, and jobs are up."

Maybe so. But on economics, Bush has the disadvantage of the incumbent: His policies and their ramifications are on full display, while the Democrats need only paint a picture of a rosy future. Unless employment comes roaring back soon, the war President may find job insecurity trumping national security in voters' minds.

By Richard S. Dunham and Mike McNamee, with Howard Gleckman and Paul Magnusson, in Washington

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