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April 2011
Keys to Job and Income Growth in America
By John Paul Galles

     It seems that many economic indicators are showing a continuing upward trend in the U.S. economy. Momentum continues to build, but job growth is still weak. Most economists project that job growth will not return to pre-recession levels until 2014 and beyond. Unfortunately, a significant number of jobs that have been lost will not return.

     Many proposals for job creation—from tax cuts to more stimulus spending—have been put forth from different political perspectives. Yet none of these recognizes the fundamental changes that businesses have experienced over the last 25 years.

     Just recently, Steven Pearlstein, columnist for The Washington Post, wrote about boosting job growth in the United States. He reported about the work of Michael Spence, former dean of Stanford Graduate School of Business and former dean of Harvard’s faculty of arts and sciences, and Sandile Hlatshwayo, a new colleague of Spence at New York University’s Stern School of Business, and how their findings affect job growth strategies.

     Together, Spence and Hlatshwayo have formed a cohesive perspective of the American economy based upon what happened between 1990 and 2008—a period of rapid globalization. Jobs in the United States fall into two basic buckets from a statistical standpoint. One bucket, the tradable bucket, includes jobs from those companies that operate in the global market, subject to competition from foreign firms and suppliers. Generally, that includes manufacturing, agriculture, minerals, energy and a significant section of business and financial services. The second bucket includes jobs that are non-tradable such as government, health care, retail, construction, hotels, transportation and wholesaling.

     They conclude that most of the job growth over that 18-year period came from non-tradable activities, primarily in government, construction and health care. During the same time, substantial job losses came from the tradable bucket. They also learned that GDP growth over that period was nearly equal from both buckets, with the tradable sector experiencing a slight edge.

     Summarizing the study, the conclusion is that one bucket—the tradable bucket—produces income growth while not losing jobs, and the other bucket—the non-tradable bucket—produces jobs, but not much income. As a result, our economy produces unequal and disparate growth leading to political polarization.

     Our U.S. economy is in the midst of a huge structural shift as a result of globalization. Some argue for trade barriers…others advocate simple free-market capitalism. Spence’s view is that what is needed is a policy that brings together the efficiency and growth of globalization and delivers offsets to the inequality of income and jobs that it creates. Redistribution of income is also not the answer, he says. What must be done is to find a way to encourage multinational corporations to invest in American workers, making them more productive than their foreign competitors.

      One successful example of this policy was the “voluntary” auto-import quotas negotiated with the Japanese in the 1980s. Foreign companies established U.S. assembly plants. With extensive training and investments in the latest production equipment, these companies found they could produce quality cars at competitive prices right here in the U.S. It is likely that the same “voluntary” quotas could affect other industries as well.

     Unless or until globalization reaches equilibrium of production, wages, income and security, we will need to seek some targeting of resources to opportunity. Wealth cannot continue to only go to investors, PhDs and MBAs. The American middle class needs to grow as well. That means job growth and equitable income to workers regardless of their economic bucket. This is an evolutionary problem for the United States as the rest of the world seeks to participate in economic development.

John Paul Galles is the publisher of Greater Charlotte Biz.
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