Today’s grim news on rising claims for unemployment is only the latest in a string of downbeat reports. A few days ago, we had Walmart reporting that sales are down in comparison to last July, during the depths of the recession. Add to that Chinese cooling, British retrenchment, Fed dithering, and an 8 percent decline in the U.S. stock market since April. While the business press picks up one new term after the other to try and understand what’s happening (the latest is the new normal), we need more than neo-logisms to solve what ails the U.S. economy. For starters, we need to recognize the structural problems bedeviling the labor market.
The standard prescription is the trickle-down theory of employment, that aggregate growth will bring jobs along with it. But even as GDP began to roar back, private-sector job growth has been dismal, and in the last two months, it has stalled. State and local governments are laying people off and the stimulus money runs out later this year. The fraction of the population at work has dropped significantly over the last three months, and there are now five workers for every job opening. There are about 25 million people officially unemployed, discouraged from looking, or involuntarily on part-time schedules.
In contrast to expecting consumers or even the government to spend us out of recession, reducing average hours of work and strengthening local economies and small businesses will have powerful and immediate effects on energy use and carbon pollution.
One reason for the current intractability is that U.S. businesses over-reacted to the initial downturn. Analysis by the OECD shows that in comparison with what happened in other countries and historical experience, “too many” American workers were laid off. The OECD has no explanation. But perhaps it wasn’t panic, but a structural disinvestment in the U.S. labor force. The jobs are being lost to labor-shedding made possible by the productivity advances of information technology and outsourcing. The economic policies of the Bush administration, which led to declining manufacturing capacity, low rates of domestic investment, and the privileging of finance over other sectors, sowed the seeds for such a large initial response.
That analysis is not original to me. But this is: There’s another structural factor that will keep U.S. unemployment high, namely hours of work. As I detail in my recent book, Plenitude, while Europeans reduced annual hours of work over the last three decades, many American firms were ratcheting them up. In comparison to workers in European nations, Americans put in up to 350 more hours each year. To add a job, an American firm has to generate between 15 and 25% more dollars of revenue, in comparison to most European competitors. If you’re wondering about China or India, where hours can be very long, wages there are much lower.
Firm size is also factoring into the equation. The innovative and high employment growth companies of the last few decades have been small and midsize businesses. By contrast, the big corporations are at the forefront of outsourcing and labor shedding. A recent calculation by Wall Street 24/7 finds that a mere 25 mega-companies accounted for 700,000 layoffs. The disproportionate political clout of large firms means that economic policy is held hostage to a group of actors who have already undertaken significant disinvestment in the national economy.
In the coming months, as the economy continues to falter, serious discussions about economic policy will resurface. Republicans will want to cut taxes for the rich. Unimaginative Democrats will want more federal spending. But neither will create the restructuring we need to equilibrate the labor market and put people’s lives back in order. To do that, we’ll need to address hours and scale.
Using the unemployment-insurance system to fund hours reductions is the right first step. Over time, policy changes that allow workers to get benefits and good career tracks with short time schedules are needed. We could follow the example of the Netherlands, whose entire financial sector went to a four-day week years ago.
We also need real ways to bolster small businesses, many of which have been decimated by the downturn. Policies include loan funds, tax incentives, and more health-insurance reform, as well as support for innovative ownership structures such as cooperatives, which are making a comeback. The health of the small-business sector will track the fortunes of ordinary people far more than the health of the global corporations.
These changes will not only get the economy moving in the right direction, they’re also green solutions. In contrast to expecting consumers or even the government to spend us out of recession, reducing average hours of work and strengthening local economies and small businesses will have powerful and immediate effects on energy use and carbon pollution. That’s the kind of structural change that will be needed for a true recovery.
Juliet Schor is professor of sociology at Boston College, co-chairwoman of the board of the Center for a New American Dream, and author of Plenitude: The New Economics of True Wealth (The Penguin Press 2010).