Making the economy work
On the eve of the Depression, Andrew Mellon, President Hoover’s Treasury secretary, said that rising unemployment would be good for the nation because it would “purge the rottenness out of the system” and force people “to work harder, live a more moral life.” Few would dare utter such words today, but the actions — or inactions — of Washington and Wall Street indicate that respect for work and workers is again approaching that dismal level.
American workers and families face the deepest jobs crisis of their lives. Wages and income remain stuck around 1980s levels. Yet government and private-sector leaders remain unwilling or unable to develop viable long-term strategies to generate anything close to enough good jobs to build and sustain a recovery. To restore work to its rightful place in the economy and society, basic and bold changes are needed in government policy and in the leadership of business and labor. And it must all start with reordering a private-sector incentive system that is badly skewed.
Currently, corporations and their executives are driven by what is awkwardly called “financialization,” the growing power of financial markets and institutions to influence business and economic policy. So instead of investing growing revenues into new and job-creating economic activity, companies opt to boost their stock prices and, with that, executive compensation and bonuses. Unless policymakers break this widening earnings disconnect between Wall Street and Main Street, promises to create jobs will mean little and the imbalance between short-term shareholder interests and the goals of employees and communities will be perpetuated.
Skeptics might say, we agree, but what can be done? The deficit is too big, banks are reluctant to loan to new firms, big business isn’t investing or hiring, shareholders demand profits, jobs are sucked away by global competition, and unions are too weak to do anything about it. Meanwhile, unemployed Americans stop even looking for work and allow their human capital to further depreciate.
All this is true. But defining the problem in such a systemic way is also the first step toward solving it.
That is the goal of a group of academics now coming together under the banner of the Employment Policy Research Network. We believe it is time for bold actions that are based on research, not ideology or partisan rhetoric. Research-based proposals being generated by members of this network include:
Expand job creation tax credits. Because firms need greater incentives to invest, they should be able to receive tax credits for adding any employees. Current policy limits such credits to firms that hire the currently unemployed.
Restore top tax rates to pre-1980 levels. Allowing the expiration of current tax breaks for those who earn the most will help matters, but a more powerful way to assure that executives put revenues into long-term, job-creating investments rather than short-term, bonus-boosting profits is to take tax rates back even further in time. In 1970, the income tax rate was about 70% for compensation above $200,000 a year. Applying that rate to incomes of $1 million or more would change behavior and begin reversing the income disparities that have built up since then.
Modernize labor law. Too much futile political energy has been wasted on labor law reforms that merely seek to patch a failed system. Research by our network members demonstrates that prevailing labor law neither protects workers who try to organize nor supports the types of labor-management partnerships needed to drive innovation, productivity and wage growth. One recent study shows that 9 out of 10 efforts by workers to join a union and gain access to collective bargaining fail when met with determined management resistance. On the other hand, two decades of research in industries as diverse as healthcare, airlines and manufacturing demonstrates that by working in partnership, unions and companies outperform both old-style adversarial union settings and nonunion settings. A fresh approach to labor law, one that builds on this research, is needed to give workers the voice they want and need to build sustainable, productive partnerships with their bosses.
Other steps are of course needed. To signal our intent to be the world’s leading innovation-knowledge-driven economy, for example, a permanent investment tax credit should be created. Passage of the COMPETES Act now languishing in Congress would support direct investment in research and development by increasing funding for science and education. Worker training and education programs must be revitalized to help the unemployed find jobs in sectors where there is demand, including healthcare, green technology and occupations related to civil engineering and infrastructure repair.
Labor Day is the perfect time for all Americans to call for bold actions — backed by research — like these to solve the jobs crisis.
Thomas A. Kochan is a professor at the MIT Sloan School of Management, co-director of the MIT Institute for Work and Employment Research, and co-founder of the Employment Policy Research Network.