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Growth without jobs

THE ECONOMY grew at a sizzling 8.2 percent in the third quarter. But job growth is not following. The economy has shed about 2.6 million jobs since President Bush took office. In the past few months, it has begun creating new jobs, but not nearly enough. Last month the economy gained only 57,000 new jobs, compared with the 306,000 a month pledged by the administration. It actually continued to lose jobs in the politically sensitive manufacturing sector, some 19,000 last month. It's not that the economy is generating no manufacturing jobs at all. Rather, the good, unionized jobs in sectors like autos and steel are being lost to automation and low-wage foreign competition. It just happens that manufacturing is concentrated in political battleground states like Ohio, Pennsylvania, Michigan, and Wisconsin.


Last month the unemployment rate ticked downward a bit, to 5.9 percent. Job creation at the current rate will not make much of a dent on overall unemployment between now and next November. Long-term unemployed workers, now 24 percent of the total, are at their highest share since 1983.

A related issue is wages, which are lagging inflation. Employers have effectively been cutting take-home pay by shifting health costs to employees through reduced employer contributions and higher out-of-pocket copayments.

With labor markets still so loose, employers face little pressure to hike wages. Lower-income workers have been falling further behind ever since the early 1980s. Only in the late 1990s, when the unemployment rate briefly dropped to around 4 percent, did workers at the bottom briefly post real gains.

As a new report by the Economic Policy Institute points out, this recovery is like no other recent economic turnaround in the low proportion of income gains that have gone to wages. The EPI, citing Commerce Department data, calculates that in the last seven major recoveries, dating back to 1949, labor compensation at this point in the cycle typically commanded around 61 percent of the new growth in output and in no case less than 55 percent.

But in the current recovery, labor compensation is just 29 percent of total income growth. What gets the lion's share? Corporate profits.

In the typical postwar recovery, corporate profits got about 26 percent of the pie. This time they are getting 46 percent. That helps explain the stock boomlet, but it won't feel very comforting to the typical worker (who is also the typical voter). The other big job-killer is trade. The trade deficit is now running at an annual rate of more than $500 billion -- about 5 percent of GDP. If America's trade accounts with the rest of the world were balanced, foreigners would be buying more products from the United States, and Americans would have millions more jobs.

The United States keeps running an ever widening trade imbalance for several reasons. First, wealthy countries like Japan and the European Union are growing more slowly than the United States and count on us to absorb their exports. Despite its high wages, Europe actually manages to run balanced trade accounts with the rest of the world.

Second, poor countries like China and India are taking not just low-wage jobs like the manufacture of toys and clothing but increasingly high-skill, high-salary jobs like software engineer. It's desirable for poor countries to move up the economic chain as long as they pay their own people decent wages as their productivity rises. But China violates its own rock-bottom minimum wage laws.

Third, rich countries and poor ones have used state subsidies to build industries as diverse as steel and semiconductors, which also violates trading rules. The World Trade Organization has ruled against US retaliatory tariffs on steel but does little to stop the subsidies that lead to the worldwide steel glut, or the state involvement in the creation of China's semiconductor industry.

The Bush administration protected domestic steelmakers with tariffs, then withdrew them in the face of WTO objections. It fought to have China admitted to the WTO, but has not insisted that China abide by WTO rules. In theory, a gradual shift of low-wage jobs to poor countries can be good for both the United States and the Third World. But unless the US government intervenes forcefully demand that every nation follows the same rules, US workers will be the losers.

The administration, on balance, sides with the global corporations that benefit from the low labor costs and with corporate profits at the expense of worker wages. That strategy is unsurprising but may be shortsighted. At the end of the day, corporations don't vote.

Robert Kuttner is co-editor of The American Prospect. His column appears regularly in the Globe.

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