The Jobs’ Crisis and American Employment Policy: A Call for a Jobs Compact

Thomas A. KochanMIT Sloan School of Management and

Institute for Work & Employment Research

Northeastern University Open ClassroomBoston, MA

September 19, 2012

Context

• Worst Jobs’ Crisis since Great Depression– Quantity: Persistent Jobs Deficit– Quality: 30 years of stagnant wages: Broken Social

Contract

• Outdated Employment Policies: Mismatch between changing workforce, work, and economy

• Policy Stalemate turned to Political Polarization

• Vacuum of National Leadership

The Good News

• Local Innovations as a base for national policy– 30 years of innovation– 30 years of research, tracking, evaluation

• Growing recognition of crisis– Harvard’s “Competitiveness Summit”– And yes there is an election coming….

A Proposal

• A Jobs Compact: 20 million jobs by 2020

• First step in comprehensive employment policy reform

Overview

• Dimensions of the jobs crisis—in numbers & pictures

• Root causes that need to be addressed

• Substantive dimensions of the Jobs Compact

• Complementary policy and institutional innovations

• How to get there—can we get there???

Dimension 1 of the Employment Crisis: Persistent Jobs’ Deficit

• 8.1% unemployment; 16-20% underemployment

• Deeper, faster employment declines in Great Recession than GDP decline would have predicted

• Slower post-recession job growth– Large firms reluctant to invest in U.S.– Longer term decline in new start-ups

• Serious cohort problems– New graduates—underemployment will leave long term, possibly

career long, imprints on income– Long term unemployed—50+ year olds will never recover

Job Loss in Five Most Recent Recessions as Percent of Peak Employment

Source: Bureau of Labor Statistics, Center for Economic and Policy Research

Dimension 2 of the Employment Crisis: Long Term Declines in Job Quality

• Broken “Social Contract”– 1945-80: wages and productivity grew in tandem– Since 1980: good productivity growth; stagnant wages for majority of workforce; trend

worsened in past decade

• Greatest inequality since 1928—eve of Great Depression

• Top 1% of families captured 58% income growth 1976-2007;

• Top 10% captured 50% of national income in 2007

• Other job quality indicators

– Declines in retirement plans and savings– Health insurance coverage gaps (45 million without employer provided health

insurance– Declines in apprenticeship training– Declining job satisfaction

1946

1947

1948

1949

1950

1951

1952

1953

1954

1956

1957

1958

1959

1960

1961

1962

1963

1964

1966

1967

1968

1969

1970

1971

1972

1973

1974

1976

1977

1978

1979

1980

1981

1982

1983

1984

1986

1987

1988

1989

1990

1991

1992

1993

1994

1996

1997

1998

1999

2000

2001

2002

2003

2004

2006

2007

2008

2009

2010

0

50

100

150

200

250

300

350

400

450

ProductivityHousehold IncomeAverage Hourly Earnings

Ind

ex (

194

7 =

10

0)

Source: Employee Benefit Research Institute. EBRI's estimates for 1998-2008 were done using Department of Labor and Current Population Survey data. Credit: Alyson Hurt / NPR Source: http://www.npr.org/templates/story/story.php?storyId=124131819

Private Sector Defined-Benefit and Defined-Contribution Plan Coverage, 1979-2009

Wall Street Journal, February 19, 2011.downloaded at: http://online.wsj.com/article/SB10001424052748703959604576152792748707356.html

Wall Street Journal Estimates of Retirement Income Shortfalls

Declining Job Satisfaction 1987-2009

Source: The Conference Board. Data used with Conference Board Permission.

Root Cause (1): Market Failure• Financialization of the economy

– Rise of investor capitalism in 1980s • Leveraged buyouts, hostile takeovers• Deregulation of financial markets and institutions• Rise of shareholder maximization as the sole purpose of the firm• Growth of financial sector—talent, profits, and compensation

• Globalization of investment options and markets

• Net result: – Gulf between interests of individual firms and national economy– Yet overall business community and national economy interests

are more aligned

Net Result: Two Equilibria Economy• Some firms compete with “high road” strategies

– Focus on innovation, productivity, quality, service

– Invest in employees’ human capital development

– Employ “high performance” employment practices and labor management partnerships

• But are held back by dominant “low road” competitors– Focus on low cost/low labor cost strategies

– Outsource lower skill work (domestic and global)

– Avoid (successfully) unions

– Employ traditional command and control management practices

– Oppose any and all employment/labor policy reforms

Root Cause (2): Institutional Failure(s)• Mismatch between labor market demand and institutions

– Movement to “knowledge” intensive economy; college education and technical training did not keep up

– Decline of unions and collective bargaining as • A countervailing power• Source of innovation in employment practices

– Retreat of government from labor market policy• Wage norms abandoned

• Labor Relations policy breakdown and long term impasse

• Weaker enforcement of employment standards

• Slow take up of new “two-track” enforcement models

• Labor policy relegated to low status as a political problem rather than a set of economic policy tools

• Vacuum in business-labor-government-education dialogue

Proposal: Create a Multi-stakeholder Jobs’ Compact

Jobs’ Compact

Education

Business

Labor

Government

Needed: 208,000 new jobs per month to 2020!

Elements of a Jobs Compact

• State, local, and education job investments

• Infrastructure Investments

• Manufacturing– Recover lost manufacturing jobs– Capture next generation manufacturing jobs

• Rebuild Apprenticeships

• Diffuse the best Community College-Industry Partnerships

• Second Chance College Technical Courses– On-line– In-person

Where could these jobs come from?

Contributions to Closing the Jobs DeficitGDP Growth (7.5 million)

Infrastruture (4 million)

Recaptured Manufacturing (2 million)

Next Gen Manufacturing (1 million)

Apprentices (2 million)

Community Colleges (2 million)

Second Chance College Tech Courses (1.5 million)State/Local Government (0.6 million)

Complementary Employment Policy Changes

• New Objectives and Approach to labor law and policy– Fix the basics—assure worker access to unions– Promote labor-management partnerships– Proactive efforts to diffuse innovations and engage in further experimentation

and evaluation

• Reduce High Road-Low Road Gap aka “Level the Playing Field”– Industry-Region Based Learning Networks– Raise the minimums—minimum wage– Use purchasing power to promote high employment standards

• Modernize Employment Standards Enforcement– Internal Responsibility systems – Leverage key points in value chain– Partner with unions, community groups, worker centers….

Organizational Reforms: Education

• Expand access to on-line courses and technical degrees for underemployed recent graduates

• Expand B-School offerings on how to build, lead and manage sustainable organizations that work for shareholders, employees, and society– MBAs, alumni, current and future entrepreneurs

– Action Learning – expose students to real problems

– Broaden constituents – engage labor and government leaders

• Facilitate the Jobs’ Compact in Regions

Organizational Reforms: Business

• Work together—Strengthen industry, regional networks

• Network strategies to spread high road strategies– Learning networks

– Joint investments in education/training

• Strengthen cross-stakeholder ties—universities, community colleges, labor, government

Organizational Reforms: Unions and Professional Associations

• Treat knowledge as key source of power

– Expand apprenticeships and professional development-certification programs

– Focus on becoming the labor supplier of choice

– Develop next generation leaders

– Create life-long recruitment/membership models

• Strengthen cross-stakeholder ties—business, education, and government

Organizational Reforms: Government

• Bring employment/labor back into mainstream economic policy making

• Return to an outreach tradition: Strengthen cross-stakeholder ties: business, education, labor

Reinvigorating the Department of Labor

• Defining Role: Catalyst for Diffusing Innovations

• Rebuilding “Social Dialogue” with broader constituencies– Labor, Employers, Workforce Groups, Community

Organizations/Intermediaries, Education, Researchers

• Rebuilding Internal Analytical Capacity

• Strengthening Links to External Researchers

Leading Policy: Secretaries’ PastSecretary Administration Engagements

with Labor & Employers

Arthur Goldberg & Willard Wirtz

Kennedy & Johnson President’s Labor Management Committee

John Dunlop Ford Labor Management Group

Ray Marshall Carter Steel Industry Tripartite Committee

Robert Reich Clinton Commission on Future of Worker Management Relations (Dunlop Commission)

Or…Leadership from the Outside?

• Do we revamp President Obama’s Jobs & Competitiveness Council?

• Should we leave it to Harvard Business School?

• Can our Research Community Lead the Effort?

• Do we sit it out until after the election?

And then… Wisconsin

And Now…..Massachusetts!

What if we Fail to Act?

• Continued decline in American living standards

• End to the “American Dream” (each generation should be able to do better than the last)

• An era of social unrest?