THE No. 1 economic issue in America is jobs. Americans worry not just about keeping a job, but about keeping a good job - one that will support something close to their current standard of living. Many Americans fear that the United States economy will no longer create enough good jobs to go around.
On the positive side, huge numbers of workers entered the labor force during the 1970s and 1980s, and the American economy found jobs for almost all of them. America's success in creating jobs is especially impressive in contrast to Europe, where virtually no new jobs were created between 1973 and 1985. Although the current US unemployment rate of 7.7 percent is too high, that figure would drop once the economy picks up.
On the negative side, many of the new jobs created have been of relatively poor quality. Of the 13.6 million jobs added between 1979 and 1989, 5 million paid less than $250 a week - roughly the poverty level for a family of four. The average weekly wage for American workers actually fell in the 1980s.
The group of Americans hurt most by these trends were young, less-educated men. The percent of males age 18-24 working full-time but making below poverty wages increased from 18 percent to 40 percent during the 1980s. Workers with a college degree fared better, as employers increasingly hired highly-skilled workers. The result was a "hollowing out" of the income scale, leaving larger fractions of workers at the top and bottom and a smaller percentage in the middle.
A major cause of this hollowing out is the decline in manufacturing jobs, which have traditionally been a source of high-wage employment for less-educated workers. Only 18.2 million Americans work in manufacturing today, compared to 20.3 million in 1980.
The loss of manufacturing jobs is due, in part, to foreign competition. Some of the fault lies with unfair trade practices by our competitors, such as dumping their products at low cost in our markets or erecting trade barriers to restrict imports. But that is not the entire story, as foreign firms are often better at quickly turning technology into commercial products that are both high quality and affordable. Autos and machine tools are just two of the traditionally high-wage manufacturing industries t hat have been battered by strong foreign rivals. Even US firms that held their own in the competition often did so by moving jobs offshore.
Another factor in the loss of manufacturing jobs is technological change: the substitution of machinery for workers, partly in response to competition from low-wage countries. In addition, many firms have used technology to "downskill" the remaining jobs - for example, replacing skilled machinists with unskilled machine operators and a white collar computer programmer rather than training the machinists to do the programming.
As consumers, Americans benefit from foreign competition and trade as well as from technological advance, and American workers with high skills can benefit from the increased demand for their expertise. But there is an unmistakable tradeoff. Lower-skilled American workers, whose jobs can be performed by factory workers in Mexico or China at a fraction of the cost, tend to lose.
The same drive for higher productivity and competitiveness that reshaped American manufacturing in the 1980s is now confronting the service sector. Services account for 78 percent of all jobs in the US, and service industries ranging from banking and insurance to carpet cleaning have created all net new jobs in the last decade. But the growth in service jobs has slowed sharply in the last few years.
As in manufacturing, the downsizing in services is hitting low-skilled workers the hardest. Many service firms are computerizing their backroom operations, thereby eliminating thousands of jobs. Mid-level managers are also being shed in large numbers. These laid-off middle managers are now competing for jobs with recent college graduates. As a result, college grads are ending up with entry level jobs that high school graduates with some technical training once took.
To be sure, these trends have been aggravated by the recession. During the recessionary years of the early 1990s, the US lost over a million manufacturing jobs - more than were lost during all of the 1980s. And it is also the case that the US made a serious policy mistake in the early 1980s when we began running huge budget deficits. That meant we had to borrow large sums from overseas - driving up the value of the dollar and making our goods more expensive overseas. But more fundamental factors are also
at work, and it has become increasingly clear that in a global economy the American job machine can no longer provide well-paying jobs for less-skilled, less-educated workers.
Our two major competitors are subject to the same global economic pressures, but their workers have not experienced a comparable loss of good-paying jobs. In both Germany and Japan, the bottom two-thirds of the work force has increased its productivity faster than has occurred in the US, and that has justified rising wages. In Germany, strong unions have been able to negotiate relatively high minimum wages. These high minimum wages have, in turn, motivated German firms to invest in their workers and rais e their level of productivity. In addition, both Japan and Germany have been less open than the US to manufactured imports from low-wage countries, and this has shielded their workers from strong downward wage pressure.