White House Gets Lift From Plunging Unemployment Rate

But economists and business leaders caution that new federal mandates could stymie further job growth

NOVEMBER'S sharp drop in the nation's unemployment rate topped a pile of other convincing data that the economic recovery is on firm footing.

The Clinton administration cites an improved consumer outlook and greater business spending as the basis for its forecast that the economy will continue to expand by at least 3 percent through 1994.

But some economists and industry analysts caution that while the 2 1/2-year rebound from recession is gaining momentum, the United States' domestic policies, along with sluggishness in overseas markets, could stymie job growth.

``My view of unemployment is simple,'' says Richard Vedder, an Ohio University economics professor and author of ``Out of Work: Unemployment and Government in Twentieth Century America.'' ``It happens when workers are too expensive for employers to hire.''

US firms are likely to run into such problems, given the prospect of Clinton initiatives that rely upon business to finance them, Mr. Vedder says. ``When you have an activist administration, businesses tend to be more cautious.''

Business leaders say existing mandates, such as workers' compensation, environmental standards, and family leave have a negative impact on the bottom line; they worry about other mandates looming ahead, including health care and worker training, that could make it unaffordable for them to add to their work forces.

Meeting these federal requirements can account for as much as 40 percent of a company's investment in hiring a new worker, Vedder says. He adds that the data show an abundance of part-time, temporary, and overtime work among existing employees - all designed to avoid those costs, Vedder says.

Laura Tyson, chairwoman of the White House Council of Economic Advisers, on the other hand, is buoyed by the recent labor statistics that show ``the factory work week is now the longest since World War II, and overtime hours are also very high.'' These developments suggest that employers will fatten up their employment rolls in the coming months, she says.

Trepidation over the Clinton health care reform is misplaced, she contends, insisting that the White House initiative will actually lower the growth of health-care costs for American companies and be ``good news for the economy.''

And Ms. Tyson gives the administration high marks for devising a deficit-reduction plan that has pushed interest rates to historically low levels, spurred consumer spending, business expansion, and job growth. That environment is unlikely to change, she says.

But she spurns calls for further deficit reduction and instead signals the need to spend more to generate work for the ``substantial number of long-term unemployed people in the economy.''

Clinton confidant Felix Rohatyn counsels the White House economic team to work around the failure of the private sector to generate substantial job growth by stepping up government investment. A $250 billion infrastructure expenditure over the next 10 to 12 years will produce 1 million new jobs per year, he says.

`The administration is dusting off some of these [stimulus] ideas again,'' says Vedder, who compares the Clinton approach to that of President Roosevelt in the 1930s. ``Back then, businesses were scared, because Roosevelt introduced social security [Clinton is pushing something similar in magnitude: health care] and minimum wage laws [Clinton is talking about raising the minimum wage].''

Vedder says that despite the years of Roosevelt-inspired government spending programs, including the Tennessee Valley Authority, the Works Project Administration, and the Civilian Conservation Corps, as well as reformist measures such as social security and other income-maintenance programs, there was very slow job growth. If the current president manages to win approval for a much-scaled-back stimulus, ``the impact on employment will be marginal,'' he says.

IN the meantime, business planners are still skittish. ``Activist presidents like this come along every 30 years,'' Vedder says. ``Because we don't have much experience with them, it's tough to predict the politics.''

As US firms grapple with domestic policy risks, the global environment presents a growing challenge. Vigorous export growth is essential to expand the US job base. But while the importance of foreign markets is increasing, the US trade gap is widening, with exports declining and imports hitting new highs.

The National Association of Manufacturers, among other US industry groups, is encouraging members to become more export-oriented. NAM economist Gordon Richards questions the sustainability of the current growth in the US work force. ``Since consumption spending [which leads to job growth] is rising more rapidly than income, the first quarter of 1994 could witness a major downturn as consumers retrench,'' he says.

The US chemical industry, among the nation's most robust international competitors, is engaged in a ``bruising international competition for global markets,'' says Allen Lenz, director of economics and research at the Chemical Manufacturers' Association. Chemicals account for 10 cents of every dollar of US exports, he says. Mr. Lenz predicts a flat, if not negative, forecast for job growth within the chemical industry next year.

Pointing to troubles abroad as well as at home, he attributes the poor job picture to an ever-growing capacity of other countries to develop their own chemical production and the costly impact of US business regulations, which he says are tightening up under Clinton.

of 5 stories this month > Get unlimited stories
You've read 5 of 5 free stories

Only $1 for your first month.

Get unlimited Monitor journalism.