Jobless growth

June 08, 1993

"Jobless growth" has troubled American economists and the Clinton administration. The U.S. economy grew fairly robustly last fall and winter (it slowed in the spring), but unemployment remains troublingly high at 6.9 percent of the work force.

It is a familiar pattern. Unemployment is what economists call a "lagging indicator" -- that is, the rate goes up or down after upturns or declines in the general economy. This is because employers often try for a while to weather hard times without trimming their work forces, and then tend to respond at first to a pick-up in business by assigning overtime rather than taking on new employees.

Economists have other explanations for "jobless growth." One is that getting rid of workers -- "downsizing," going "lean and mean" -- has been the game plan of corporate America in recent years as it restructures to compete in a global market. Though it's small comfort to laid-off workers, a dramatic increase in productivity last year shows the success of this effort: Fewer employees working harder are achieving more.

Too, government policies in recent years may have discouraged employers from taking on more workers. Raising the minimum wage prices low-skilled workers out of the labor market. The exploding cost of providing health care steers employers toward part-time and temporary workers.

Jobless growth is also a worldwide pattern. A recent study by the United Nations Development Program reported that economic growth has outstripped job creation everywhere. From 1960 to 1987, France, West Germany and Britain saw their economies more than double, while employment rates actually fell. In the developing countries over the same time, less than a third of the growth in output came from increased labor input; the rest resulted from capital investment.

For the U.N. body, the lesson was that raw economic growth does not necessarily tell the story of human well-being. The spread of free markets and democratic institutions, the UNDP said, has not been accompanied by a corresponding increase in the ability of ordinary people to control their lives.

Yet the U.N. report did not endorse a statist approach to job creation. It advocated devolving government investment decisions to local decision makers and strengthening the role of non-government organizations in targeting economic aid. It warned against the "seven sins of privatization" (such as corruption and social irresponsibility), but acknowledged that too much state regulation makes economies work worse, not better.

These are the lessons for the U.S., too. New gains in productivity will create new economic opportunity -- and new jobs. To subsidize obsolete industries or erect trade barriers in the name of protecting jobs retards job growth in the long run.

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