In the business press the question of the day is whether we are entering a recession. But even if we do not slip into recession, there is an old problem that we ought to address, and that is the shortage of good jobs. Only one of the presidential candidates, John Edwards, seems to understand the issue. Many of us don't think much about it, and that is surprising because for three decades average wage levels have gone nowhere.

I discovered the importance of the deficit of good jobs as I researched my history of poverty policy in postwar America, Why America Lost the War on Poverty. I concluded that War-on-Poverty programs failed because they did not create many jobs.  Even during the boom of the 60s there was a shortage of good jobs and in the 70s the situation worsened.  Women, baby boomers, and immigrants flooded the labor force and global realities worsened for employees. Poverty rates stopped falling and the pay of average Americans stagnated. The elimination of poverty and near poverty in the U.S. requires many things; I offered seventeen suggestions in my book, but the top two involved the direct creation of decent jobs.

The facts about pay are familiar. The after-inflation hourly wage of the average worker in December of 2006 was 7% below what it had been in 1972. Poverty rates have never fallen below the 11.1% level they reached in 1973. Full-time year-round female workers have gained, although they still earn less than men. Annual pay for men who work full-time year-round was less in 2006 than in 1973.

What explains the wage depression? Two explanations are common: increased global competition and a shortage of skills and education. There is not much to the school-and-skill argument (does it explain Wal-Mart's heavy reliance on Chinese workers?), and although globalization was influential, two other factors were more potent: the erosion of equalizing institutions and the glut of workers. We know a lot about the former: the declining influence of unions, a low minimum wage, and so on. We know less about the worker surplus. In a nutshell, since the early 70s, there have been more potential workers than jobs. The result: weak bargaining power for employees. 

This idea of a permanent labor surplus challenges dogmas that have been with us for a long time. President Reagan claimed that there were plenty of jobs even while he supported policies raising unemployment. Pundits and politicians think that we are usually at full employment. Conservatives don't believe in unemployment; you can always find a job if you will just work for less. We know that many people just don't want to work, right? That is what my doctor claimed but he received one hundred applications for one low-wage position. There are specific and seasonal labor shortages (as in nursing and farm work) but few general ones. Since World War II, we have had robust demand for labor three times: in the early 50s (Korea), the late 60s (Vietnam), and the late 90s (a miracle).

What support is there for my view of the labor market?  There are stories. For every tale of a worker who does not want to work, there is a counter-narrative. This fall, 6,000 people lined up for 300 jobs at Wal-Mart's new Supercenter in Cleveland. That was for work with a company that pays poorly, is stingy with benefits, and discriminates against women.

Aside from stories, new perspectives suggest that unemployment is much higher than the 5% government figure for December. Scholars have long questioned the Bureau of Labor Statistics criteria (you are unemployed only if you have looked for work in the past four weeks) and thirty years ago the BLS inaugurated alternative measures that included some who wanted work but had not recently looked and part-timers who wanted full-time work. Adding those categories the Bureau generated an 8.8% alternative unemployment rate for December. Going beyond that, the National Jobs for All Coalition adds people who want to work but are inhibited from looking by such things as child-care responsibilities and fear of discrimination. The coalition came up with an unemployment rate of 10.8% for December.

I'd go even farther. There are downsized workers who do not find work and slip out of the statistics and independent contractors who are really unemployed but too proud to admit it.  There are scientists and engineers who are replaced by low-wage immigrants brought here under government protection as a present to struggling corporations like Microsoft. There are millions of Americans over 65 who want to work but have not searched recently and millions on federal disability who would be looking for work if there were no disability program or working if jobs were more attractive. And finally, to return to something we are all familiar with, Americans compete in a world-wide labor force that includes workers in China, India, Mexico, and other nations with colossal unemployment.

Our official unemployment rate tells us about 1/3 of what we need to know about the potential labor force. My alternative, although less precise, tells us more, and it tells us why wage growth has been lousy for thirty years: too many workers, too few jobs.

What is the solution?  First, politicians and pundits need to get with reality. Most won't because solutions are costly, disruptive of old beliefs, and threatening to campaign contributors. But one can hope. Second, Federal Reserve officials must take unemployment seriously. Recession cannot be the Fed's automatic answer to inflation; the chair should announce that other agents of government have to help fight inflation by focusing directly on health care, energy, college tuition, and the most inflationary area of all, CEO pay. Third, in part because the Fed rarely allows the economy to grow long enough for sustained high labor demand, others in government must create millions of good jobs. We should roll back tax cuts for the rich and expand public investment in the long delayed repair of infrastructure, the teaching and caring professions, an environmental corps, and a dozen other socially beneficial areas.

Will it happen?  One can always hope that facts and common sense intervene and dogma and campaign dollars recede. A successful jobs program would mean more people with jobs that paid well and fewer people working. The aim of the program is not that every single adult is working, but that people have enough income to support a family. Ultimately our common goal should be to have more people with savings or with partners earning enough so that individuals may step out of the labor force to care for children or a sick relative, engage in political action, or read poetry.

Charles Bell - 2/3/2008

>> First, politicians and pundits need to get with reality. Most won't because solutions are costly, disruptive of old beliefs, and threatening to campaign contributors. But one can hope.

You're right that this is certainly a "heavy lift." But with the growing crisis of bridges falling down, rising energy prices, unaffordable housing, and sub-par jobs, many voters and policymakers should be looking for bolder remedies.

We take some hope from Bob Herbert's recent column, "Investing in America" which ran on January 29 in the New York Times.

Herbert focused on a little-noticed proposal from Senators Hagel and Dodd to create a national infrastructure bank, which they announced to little fanfare last August. The American Society of Civil Engineers has estimated that the U.S. needs a trillion and a half in investment over a five year period to modernize its physical infrastructure, including roads, bridges, dams and water systems. This level of investment would bring the infrastructure into "reasonably decent" shape.

Senator Dodd comments that:

“At a time when we’re worried about rising unemployment rates and declining confidence in this country, infrastructure projects have the dual effect of putting people to work — and usually at pretty good salaries and wages — while also creating a sense of optimism, of investing in the future.”

“The basic infrastructure of a country will determine that country’s future,” he said, “and we are far behind," says Sen. Hagel, a Republican.

A national infrastructure bank could have the important benefit of creating a national, transparent mechanism for both increasing investment and addressing priority physical infrastructure needs in a coherent, accountable way.

The National Jobs for All Coalition (NJFAC) supports the infrastructure bank proposal, but we also call for public job creation in many other fields such as renewable energy and conservation, housing, child care, after school programs, youth conservation, and elder care. Such jobs would not only address our nation's myriad unmet needs, they would also offer a broader range of opportunities to women, minorities and rural workers, not all of whom could obtain jobs fixing roads and bridges.

We completely agree that reinvesting in American communities to create jobs and improve the quality of life for workers makes enormous sense. A balanced program will begin to address the huge backlog of needs, and create the essential foundation for long-term economic renewal.

For more information, we'd urge your readers to check out the NJFAC's publication, Shared Prosperity and the Drive for Decent Work, available at http://www.njfac.org/ and also to sign up for our occasional newsletter, so we can keep in touch with you regarding full employment issues.

Sincerely,

Chuck Bell, Vice President
National Jobs for All Coalition
cbell@igc.org
www.njfac.org

kBen Leet - 1/25/2008

Your reasoning is convincing. The book The Two Income Trap by Harvard professor Elizabeth Warren makes a similar case. But she doesn't mention the pill. She says that discretionary income after necessary expenses has shrunk in 30 years according to a government study with a long name.
The US Census in its vital statistics report says that non-marital births are now at 37% or 3 of 8, which is double the rate from 20 years ago, and I think in the 50s it was about 5%. I thought this was driven by low income, but I learned that in Europe the rate now is 34%, and they have a far more generous safety net for unemployed. Childhood poverty in EU is half the rate as in the US.The pill in Europe has had a similar effect, non-marital births, liberated women, more workers seeking employment.
So, the pill kicked off this trend.
And we also have more able workers than people to employ them. We have work, but not employers.

Lawrence Brooks Hughes - 1/24/2008

I would also have to know his cost in disposing of the trash, his cost to run and amortize his truck, and his cost for helpers, if any. I haven't any idea how many stops he makes every day. Yet, all these variables can be boiled down in one way: He has been operating like this for many years, probably since before the advent of the earned income credit... To paraphrase Adam Smith, "It is not his customer's interest which keeps him collecting the trash, it is his own." You suggest this guy is not in the "upper middle class." Perhaps not, but it's safe to say his margin is more than adequate, or he would do something legitimate. The only tax people in the cash economy cannot escape is the property tax. They also can be fairly sure they will never be prosecuted. How can we prosecute every barber, tavernkeeper, dry cleaner and hairdresser in America?

Robert Lee Gaston - 1/24/2008

The company I work for (as resident grumpy old guy) has 10 highly paid Information Technology positions we have been trying to fill for some time.

Our last three hires have been young people from India, and they did not come cheap. We would have loved to have filled these positions with locals.

I get the feeling that our school systems are just not producing the skilled people we need to keep our economy going.

The service sector is a little more than flipping burgers.

Stephen M Garcia - 1/23/2008

Stricker:

Even during the boom of the 60s there was a shortage of good jobs and in the 70s the situation worsened. Women, baby boomers, and immigrants flooded the labor force and global realities worsened for employees.

Yes, women did flood the job market after they got the idea that, with The Pill, they didn't need to be barefoot and pregnant in the kitchen. While it was certainly good for the millions of women who were thus freed up to do something besides raise children, their entry into the workforce certainly had its effect on the job market. It didn't happen overnight. The Pill came in the scene very early in the 60s, but it took a while for the entire impact to work its way into the national consciousness. And even after using The Pill or other contraceptives, it took time for them to realize they could augment the family income by working. Supply and Demand began to kick in and put a downward pressure on wages. Added to the monetary pressures, many millions of women found within themselves an independent spirit that had not been able to manifest so well as homemakers. And many of those also who were in 'bad marriages' found that they had options, new options. Many millions moved out, got divorced, started lives as single women and single parents. This put upward pressure on rents and housing prices, again due to Supply and Demand. We had a double whammy of lower wages and higher housing costs.

So, along with Frank Stricker's noting the status of wages due to the several factors, the after-rent or after-mortgage income certainly had to have gone down, possibly (I am intuitively certain) more.

In time, as many have noted, a time came when wages dropped enough that one income per family couldn't make ends meet. Then even more women, who would have chosen to stay home, HAD to find work. And that provided even a further stimulus on wage decline.

The Pill changed our world more than we realized...

Oscar Chamberlain - 1/22/2008

Since you know this person so well, I assume can actually approximate what his underground income adds to his wife's taxed income. You certainly claim that when you call his family upper middle class.

If you can do this, I'm interested. If not then your post is worthless.

Lawrence Brooks Hughes - 1/21/2008

Near me is a town where a friend puts $5 bills on his trash cans every time, saving 40% on the charges made by the legitimate garbage collector. He doesn't have to take his cans out to the street, either, because the Underground Economy guy comes into his garage, just like the high-priced service did years ago. The guy who collects the $5 bills has a wife who works at a retail store for low pay. He reports no receipts or income from his trash collections, but always files a joint return using her W-2 and claiming their children. This results in a four-digit check from the IRS every 12 months as an "Earned Income Credit," despite an actual familiy income in the upper middle class range, on which they pay no income tax at all. The family shows up in poverty statistics, of course, which encourages naive liberals to cry about how badly "the poor" are suffering.

kBen Leet - 1/21/2008

Reinforcing this account is the fact that "a large share of the workforce, roughly a fourth, still earns poverty-level wages."(24.7% in 2006)(State of Working America, 2006/2007, pp. 128) This economy produces about $40,000 per capita, yet the median individual income is around $32,00. And the GDP/worker rate is over $80,000. Arguably the capitalist method could cut profits and produce higher wages easily. State of Working America also reports that the top one percent received 18.4% of the national income in 2006, and 60% of the workforce received 20.3% (pp. 79). Hope those numbers don't confuse you.

Lawrence Brooks Hughes - 1/21/2008

The U.S. is currently enjoying the lowest unemployment rate in 30 years--give or take a fraction of a point--and this was not accomplished by sending large numbers of unemployed a public stipend to stay home. The relationship between employment and unemployment was demonstrated clearly by the federal welfare reform law of 1995, forced on Clinton by the Republican Congress. This reduced unemployment sharply, and increased employment, without causing any deleterious side effects. The LBJ War on Poverty, by comparison, threw government checks at the people and got us nothing but higher taxes and more of the underclass. The opposite approach, since 1995, has clearly worked. Why not stick with what works?? Why advocate running backward, with such zeal, to punish employers with higher taxes which will simultaneously dry up the source of new jobs? How many times do you need the same lesson?