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DLC | E-newsletter | September 2, 2010
A Somber Labor Day

The observance of the 128th Labor Day will be a somber one. The national economy is growing, if slowly; layoffs have returned to a normal pace; and vigorous policy response to crisis has averted economic disaster. But on the day we set aside to honor working life, 15 million American men and women are unemployed and growth remains shaky -- recovery from financial crisis is always slower than recovery from cyclical recession -- and still depends as much on fiscal stimulus as on the private sector.

Workers had reason for anxiety well before the current crisis. The financial panic which began a week after Labor Day 2008 capped a long period of stagnant job creation -- a net gain of 6 million new jobs between 2001 and 2007, far below the 15 million for 1991-1997 and also below the smaller gains of the 1980s, 1970s, and 1960s -- which raises long-term questions about America's capacity to put its people to work.

This Labor Day weekend, then, government, businesses, and workers face a double or even triple challenge: helping the unemployed return to work; healing a post-crisis economy; and looking more deeply for ways to restart the job engines that sputtered in the last decade. Drawing on Bureau of Labor Statistics data on unemployment, layoffs, and hiring, we offer three principles as a starting point for policy:

Help those who need it most: First, unemployment is worst among the least educated. As Bill Galston writes in The New Republic, the total scale of unemployment reveals "staggering misery" and economic loss. The case for continued emergency support for unemployed workers remains strong, as is the case for continued hiring incentives for small businesses. But data on unemployment and hiring patterns from the Bureau of Labor Statistics show that education and training are the best protection against job loss, and the best hope to get rehired fast. For college graduates, unemployment peaked at 5.0 percent last year and is now 4.5 percent. For them, the crisis was mild and is nearly over. But for high school graduates without higher education the rate is 10.8 percent, and for dropouts it is nearly 14 percent.

This means the people who need help most are those who are less skilled and less educated. This is also the group for which job creation stalled well before the crisis. Extended unemployment insurance should be balanced with stronger efforts to give less-skilled unemployed workers the extra education that is their best hope for a secure job. (As the DLC's Jessica Milano pointed out last year, an associate degree from a community college will help qualify many for jobs in the industries -- health, IT, and others -- likely to create the most good new jobs in the next decade.) Government should play a role, but need not be a soloist. We've noted in the past and continue to believe that labor unions, whose traditional role as bargaining agents has diminished with the passage of time, have a unique opportunity to fill a gap in America's social-insurance networks as suppliers of job training, placement, and assistance in moving to new areas for work.

Give businesses reason to hire: Second, the BLS reports make another interesting point: Unemployment remains high not because of high rates of layoffs, but because hiring is unusually slow. Layoff rates are down to the levels typical of moderate economic expansions. But though firms are profitable again, they are hiring only about 3.9 million new workers a month -- not much above last year's levels and well below the 4.5 million to 5 million pace we need to bring down unemployment. Moreover, businesses report relatively few open jobs -- about 2.5 million monthly, as opposed to nearly 4 million a month in better times.

These facts -- slow hiring and few openings -- reflect a more basic reality: businesses lack an obvious source of demand for the goods and services they provide. Housing, usually an engine for national growth and construction jobs, remains depressed. With families saving more, prolific hirers like retailers and small businesses are cautious too. Further ahead, the government fiscal gap emerging later in this decade from aging, health costs, and Bush-era tax policy promises extremely heavy borrowing and perhaps new credit squeezes for private-sector employers, and therefore additional reason to be cautious.

For a strong and self-supporting recovery, businesses need more confidence than our current circumstances provide. Tax incentives help -- but they are no substitute for a credible source of private demand for the goods and services businesses produce, nor for the reliable supply of reasonably priced credit that businesses need to invest in hiring workers and expanding production. Policymakers have three ways to help create this confidence:

Tap demand abroad: Assuming Americans will not quickly return to the low savings rates that fueled binges in real estate and shopping during the last decade, we need to tap demand abroad by opening new markets for American exporters through export-oriented trade policy. We applaud the president's commitment to settle outstanding issues in the U.S.-Korea free trade agreement and bring it quickly to a vote, and to rationalize our creaky set of export controls.

Wise public investment: Building on the initiatives in last year's stimulus plan, we need a clear, long-term and credibly financed infrastructure policy -- including broadband Internet to all homes, high-speed rail networks, better airports, smart grids that save energy, and other innovations -- to improve national competitiveness, encourage exports and long-term growth, and in the meantime create a steady demand for construction, engineering, and research employment.

Credible fiscal policy: We need a credible plan to avoid the fiscal calamity looming at the end of the decade and can choke off credit as debt mounts. With the White House's Fiscal Responsibility Commission set to deliver recommendations on this topic in November, we suggest a down payment. In particular, as Congress begins to consider the expiration of Bush-era tax policy it should take account of the BLS data on job creation across the last decade. These suggest powerfully that the tax policies did not deliver employment, and the expiration of the top-bracket cuts will have little if any effect on the economy.

Third, be optimistic: We observe this 128th Labor Day at a difficult time for workers. It is a time for some realism about our challenges and some fortitude in meeting them. But it is also, we insist, a time for some optimism.

America's workers have abundant reason to be anxious but they also have also strong grounds to believe the future will be better. Our recovery, though tenuous, is real and boosted by the dramatic policy decisions of the past two years. Our companies and universities continue to attract the world's most talented and adventurous people, adding fresh talent and ideas every day (assuming we remain willing to accept them). Our open, flexible democracy remains the world's best equipped to try new approaches to old problems, experiment at the state and local level, and draw the best from experience. And our workers remain as creative, productive, and skilled as any in the world. Reason for concern, realism, and fortitude, certainly. Reason for optimism, even more.


Four jobs-and-growth thought pieces from the DLC -

Paul Weinstein and Ed Gresser on tapping demand abroad and controlling finances at home:

Weinstein and Marc Dunkelman on the housing market as a key to growth:

Jessica Milano, Bruce Reed, and Paul Weinstein on community colleges as a key to employment:

Katie McMinn Campbell on work options for low-income and less-skilled men, for whom unemployment rates are highest:

Bureau of Labor Statistics data -- "Job Opening and Labor Turnover Survey" for layoff and hiring rates; "Employment, Hours and Earnings" for net job creation and trends by industry, and "Labor Force Statistics" for employment and unemployment by age, sex, race, and education:

Some perspective --

How bad could it have been? A July paper by Alan Blinder and Mark Zandi finds that the Federal Reserve's massive extension of credit, the Trouble Assets Recovery Program (including rescues of both financial institutions and auto companies), Treasury Department stress-tests of banks, and the stimulus programs contained in the American Recovery and Reinvestment Act, averted a spike in unemployment to 16.5 percent and prevented a two-year economic contraction of 12 percent of GDP -- respectively the highest unemployment rate since 1937 and the sharpest economic contraction since 1932. Blinder and Zandi conclude:

"When all is said and done, the financial and fiscal policies will have cost taxpayers a substantial sum, but not nearly as much as most had feared and not nearly as much as if policymakers had not acted at all. If the comprehensive policy responses saved the economy from another depression, as we estimate, they were well worth the cost."

The final cost of the response came to about $1.6 trillion, or 12 percent of GDP. ($12 trillion committed, mainly through the Federal Reserve and secondarily through the TARP and stimulus; $3.5 trillion actually spent; and with the return of $2 trillion in TARP and other guarantees to the Treasury, a final cost of $1.59 trillion.) Expensive - but as they say, likely money well spent. The paper:

And Brookings expert Bill Galston on unemployment and infrastructure: