I hate being a pessimist. But if we continue to incorrectly view today’s problems through either a business cycle or deficit-reduction lens, our nation’s job generation will fall woefully short of what our nation needs and our children deserve.
In moving from the closed markets of the Industrial Age to the open markets of the Information Age, the labor force grew from millions to billions. Unless physical proximity is required for an exchange – grocery stores, barbers, nursing– any service, product or product component can be produced offshore. Even a C student in Economics 101 could predict falling US real wages and a shortage of good-paying jobs.
Welcome to the US in 2011. Despite enormous growth in GNP, wages and average family income are stagnant. Our distribution of income and wealth has dramatically worsened as Information Age winners leap past the losers.
The labor market situation is so terrible that a good-paying job has become a “public good.” Economists call public goods those products and services that benefit more than purchasers. For example, pacifists wouldn’t invest in a privately funded national defense, yet would benefit from the safety created by other individuals’ investments, an example of the so-called free-rider problem. Indeed, one of the vital roles of government is to overcome this free rider problem by using tax and spending policy to assure an adequate level of public goods.
Because of our nation’s historical robust job growth, we haven’t considered a good paying job a public good. But it is, as it benefits more than the wage earner and family. The pay creates demand for Main Street businesses and tax revenues that fund public services that benefit others. Periods of high unemployment raise future healthcare costs, increase crime and hurt academic performance.
In today’s open markets, we have too few good jobs and the situation will only worsen as other nations’ capabilities increase. Therefore public policy should recognize the vital importance of good jobs to all of us. Here are just some of the ways economic policy could adjust the cost of labor so that it better reflects the public goods benefit of jobs:
- Tax carbon and use proceeds to lower payroll taxes. In addition to lowering the cost of labor and therefore increasing employment, we’d reduce oil imports and shipping distances, which would also reduce imports. Import substitution has the same job-creating benefits as increasing exports – both raise GDP dollar for dollar.
- Change farm policy to no longer favor large farmers over smaller labor-intensive organic farms.
- Strip unnecessary costs off the cost of labor to create more demand for it. First to go: health care benefits. Unlike most nations, our healthcare finance system is reliant upon employer contributions. A single payer personal-taxpayer financed health care system – administered through private sector insurers that today administer self-insured employers benefits – would dramatically lower labor costs and increase labor demand. With one pool and one strong buyer, insurers and providers would finally tame health care costs broadly, as they’ve already done for self-insured employers.
- Rethink tax structures. Research shows that growing inequality worsens job creation, as it reduces demand for goods and services, the top concern of small and mid-size US business. Taxing job-creating businesses at a lower rate than those not creating jobs will also encourage more US job creation.
Spending and regulatory policy innovations also arise once we recognize the public goods nature of jobs.
- Take a different approach to regulation. Sarbanes-Oxley and new banking regulations are too burdensome on small IPO-ready companies and community banks – both drivers of job creation. Make these regulations less onerous.
- Invest federal money in floundering state and federal parks to create summer work camps modeled after the Great Depression camps. Here our nation’s high school and college youth unable to find work could learn workplace skills, financial management and (with tutors) close learning gaps.
- Streamline federal agency structures and radically consolidate units of local government to cut costs. The savings could fund more basic research, education, infrastructure and financial capital, all of which increase our nation’s ability to compete for jobs in the open markets of the 21st century.
Our nation’s top current and long-term issue is a lack of good paying jobs due to a transition from closed markets to open markets. Yet the Democrats continue to treat the current jobs shortage as merely a business cycle issue, which understates the problem. Republicans, on the other hand, consider debt as our gravest short-term concern. If this were true, huge upswings in interest rates would have occurred by now.
We should have seen our root cause jobs-issue coming.