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Can Use The Jobless Recovery
Tuesday, January 27, 2004; Page A16 AS THEY AWAIT the results of
the New Hampshire primary, Democrats should take a lesson from the nation's central
bankers. Out on the campaign trail, the candidates (with the honorable exception
of Sen. Joseph I. Lieberman of Connecticut) have been blaming the "jobless recovery"
on President Bush, the trade system and the new phenomenon of "offshoring" service
jobs to India. In rather less arresting tones, meanwhile, the Federal Reserve
has been trying to explain why this blame is exaggerated. As Chairman Alan Greenspan
said yesterday, the United States has lost jobs to foreigners before, yet it has
always created others. The Fed committee that sets interest rates meets today
and tomorrow, and will demonstrate one of the reasons why the new protectionism
is misguided.
This is not the first jobless recovery. In 1991-92 the economy grew steadily,
but job growth was almost nil. The reason for such recoveries, as a study by the
New York Fed argues, is that the structure of the economy is changing faster than
previously. In the 1970s and '80s, unemployment was roughly 50 percent "cyclical":
Recessions drove firms to lay off workers and recoveries drove them to hire workers
back into the same jobs. Now, by contrast, the "structural" component of unemployment
accounts for most job losses: Technological and organizational shifts are driving
firms to close jobs down permanently, and laid-off workers are having to look
for entirely new work. That takes time. Firms have to create jobs they never had
before, which takes longer than re-creating old ones. As a result, the new structural
nature of unemployment means that job creation lags in the early stages of a recovery.
Mr. Bush should not be blamed for this, though his irresponsible fiscal
policy harms business confidence and therefore job creation. But the bigger question
is whether jobless recoveries are a bad thing. They are, after all, the flip side
of good news. There is less cyclical unemployment these days, so recessions are
milder; fewer jobs are being created now because fewer jobs were destroyed during
the downturn. Moreover, a jobless recovery means, by definition, that each worker
is producing more. Higher productivity, in turn, is the best promise possible
of higher wages and employment in the future. Just look at the past decade: The
jobless recovery of 1991-92 ushered in the longest economic expansion of the postwar
period, which drove unemployment down to previously unheard-of levels, and fueled
improvements in poverty, crime and other social indicators. It's true that
the shift of service jobs to countries such as India, like other trade-related
dislocation, adds to the temporary pain of structural unemployment. But, as Mr.
Greenspan says, new jobs will be created. If a U.S. firm shifts employment abroad,
the savings flow back to the United States in the form of lower prices for consumers
and higher dividends for shareholders; the consumers and shareholders will direct
their new spending power at things that create employment. Meanwhile, the fall
in prices will allow the Federal Reserve to keep interest rates lower, boosting
the job-creation engine. At its meeting today and tomorrow, the Fed is almost
certain to keep short-term interest rates at a rock-bottom 1 percent because forces
such as "offshoring" are keeping inflation in check despite a rebounding economy.
Offshoring, like trade, creates winners and losers, which is why open trade should
be accompanied by social safety nets. But the winners will outnumber the losers,
because the adjustment creates new efficiencies. Each worker can produce more,
meaning that he or she can be paid more. Do the Democrats really mean to oppose
that? Continue with: |
