The United States faces a prolonged "jobless recovery" – its third such flabby recovery and perhaps its weakest yet in terms of employment growth.
After the last two recessions, there was a long lag between recovery by business and substantial improvements in the labor market. It's happening again, notes Howard Rosen, an economist at the Peterson Institute for International Economics, a Washington think tank. This time it could be worse than either the 1990-91 or 2001 downturns.
Blame it on structural changes in the economy in the past 30 years, Mr. Rosen says. For example, with US corporations so globalized, they can easily hire workers abroad, wherever they want, not just in the US. Thus, that great American jobs machine has "run out of steam," Rosen says.
A related reason for today's 9.6 percent jobless rate is the greater tendency of corporations to lay off workers quickly when sales slow.
"Companies treat workers as commodities rather than as investments," complains Rosen. This reflects a gradual shift in management philosophy to the view that the only corporate stakeholders that really count are shareholders, not so much employees.
Just look at who's raking in the most pay. The liberal Institute for Policy Studies found that CEOs who run the 50 firms that laid off the most workers since the onset of the economic crisis also took home an average 42 percent more pay than their peers in the Standard & Poor's 500 firms.
Rosen's proposed job remedy is that Washington should: (1) give incentives to business to spend more on new plant and equipment, (2) use federal money to encourage more research and development, and (3) do more to train the workforce for today's most promising job prospects. The Obama administration is proposing to allow small business to write off in taxes 100 percent of what it spends on new plants and equipment.
The "worst thing" the administration could do is spend additional billions to stimulate personal consumption, thereby adding to the budget deficit and national debt, Rosen says.
Federal subsidies won't stimulate much investment in plants and equipment when investors don't see a lot of good investment opportunities, says Mark Weisbrot of the Center for Economic and Policy Research. But he does see healthy new job creation if Washington spends more money on new infrastructure – roads, bridges, parks, etc.
Moreover, he holds, Washington could get many billions in "free" money to spend on that infrastructure or other new stimulus programs should the Federal Reserve buy the extra debt created as a result. It would be free, because the Fed would return to the federal government the interest paid on the additional debt.
Of course, once the economy is back to a normal level of activity, such printing of money would be inflationary, Mr. Weisbrot admits. As proof of his theory, he notes that Japan piled up debt in grand style over the past 20 years in an effort to boost a stagnant economy. The Bank of Japan bought about half the extra debt created. Yet cumulative inflation in those two decades has been only 5 percent.
How Congress will handle administration proposals for a second stimulus program is uncertain.
"Continued inaction," warns Rosen, "will ensure that the next economic downturn will be even more damaging to American workers and their families."
• David R. Francis writes a weekly column.