Don’t Downsize Productivity : Innovation: As the economy surges, America needs to restore the link between wages and increases in output.
There’s no shortage of jobs in this country. Two consecutive robust employment reports illustrate that clearly. But we need to be reminded of it in these days of talk only about downsizing--as if downsizing were at the root of our economic problems.
In fact, downsizing is at most a consequence and in any event, almost certainly a necessary ingredient to achieving good economic performance. We should spend less time resisting downsizing and more time formulating policies that ease its severe human cost and address the real issue: the deteriorating financial well-being of most of the 94.4% of Americans who have jobs.
Consider: Over the past four years, more than 8 million jobs have been created, after taking account of all the layoffs, and our unemployment rate of 5.6% is near the lowest level that can be sustained without causing inflation. Nor is there a shortage of “good” jobs. Over the past five years, nearly 60% of the new jobs created were professional, technical or managerial.
So why do we feel so bad? Because the fruits of this solid economic recovery, which celebrated its fifth anniversary last month, have been distributed unequally--disproportionately to corporate profits and to the very rich. Profits have soared not only in dollars (up nearly 50% over the past two years after adjustment for inflation) but in their share of national income.
Meanwhile, workers’ share has been dropping and so have incomes for all but a small sliver at the top. While economic inequality has been worsening for 20 years, between 1990 and 1994 alone, incomes of the bottom 60% of Americans dropped by about 5% after adjustment for inflation; the top 20% rose by 7%, and the top 5% grew by more than 15%.
Examples of this phenomenon are all around us. In New York recently, after a bitter strike, office building owners won the right to start new maintenance workers at 20% less pay than those previously hired. That’s good for costs and inflation and bad for income equality.
Remember that the key to economic prosperity is productivity--the goods and services produced by each worker. After two decades of poor productivity, we have been enjoying strong productivity growth. What is missing is the historic linkage between productivity and wages. Since 1982, productivity has risen by 20% while compensation has risen by only 8%, after adjustment for inflation, according to estimates by Morgan Stanley economist Stephen S. Roach.
The solution is not to bring productivity growth down to the level of income growth. How can it possibly make sense to encourage corporations to maintain jobs whose productive usefulness has passed, whether by technology, by better management or because they shouldn’t have been created in the first place? Imagine where we would be today if we had become obsessed with the layoffs likely when automatic telephone dialing reduced the need for operators or the assembly line permitted more cars to be made with fewer workers. Without such productivity enhancing innovation, there can be no improvement in our collective well-being.
Paradoxically, job insecurity often accompanies beneficial change. Just take the recently passed telecommunications legislation, which is doubtless responsible for a portion of the AT&T; layoffs. That legislation will deregulate an important industry, spurring new competition and lowering prices for consumers. Hundreds of young companies will be out hiring new workers, many of them skilled, even though layoffs may well continue at our older established telephone companies. Indeed, employment in the telecommunications industry remains higher than it was in 1990.
To raise both income growth and productivity growth, we need to develop ways to equip our workers with the education and skills needed to complete for the many “good” jobs that are being created in industries ranging from entertainment to health care. President Clinton proposed more than a year ago consolidating federal training programs and giving workers $2,600 vouchers that could be used for education and training. Such market-based ideas are just what we need. We should involve corporations in this effort, by incentives not to retain workers but to retrain them.
Along the way, we need to minimize the pain of workers who are not able to play a fully productive role in the new economy, such as by providing more portable private pension and health insurance plans.
