Timothy T. Taylor Home Page
Journal of Economic Perspectives
Articles and Writing
Economics Textbook
Classroom Teaching
The Teaching Company
High School Pedagogy

Articles and Writing

January 30, 1989
"More Jobs or Better Wages"
San Jose Mercury News
By Timothy Taylor
<< Back to 1989 menu

"JOBS, jobs, and more jobs" is practically a mantra for American economic policy. Sometimes it's George Bush promising 30 million more jobs by 1996, sometimes it's Democrats pledging "good jobs at good wages," but the assumption is always that an increase in the number of working Americans should be the primary economic goal.

From this perspective, the fact that the U.S. economy has managed to expand by about 16 million jobs (an 18 percent increase) over the last decade is an unalloyed delight. For comparison, countries like Great Britain, France and West Germany have almost exactly the same number of jobs now as they did a decade ago. The unemployment rate in the United States is down to about 6 percent, while unemployment in Europe is stuck at about 11 percent.

At least at first glance, this comparison sounds awfully good for the U.S. economy. But stop and think: Is it necessarily better to live in a country where more people are working longer hours?

Most of us want interesting jobs, sure. But we also want a good income and time to live the rest of our lives. Most of us wouldn't complain too much if we received an extra week of vacation each year, or if each workday was cut by an hour, as long as our pay remained the same. Well-adjusted people do not dream of working overtime.

From this perspective, jobs are only one of several priorities and job creation is no longer a minor deity. Since 1977, compensation per hour in the United States has gone up by about 85 percent. But since inflation during that time has increased prices by 87 percent, the average worker can buy just as much with a week's paycheck now as a decade ago.

In the United States, the increase in the supply of workers has helped to hold down wages. Income for an average U.S. family has increased, but only because more and more families have two people earning income.

In Europe, the reverse has been true. There, the government emphasis has been on increasing pay and benefits, even if it means no growth in jobs and fewer hours worked. For example, the hours worked by an average employee in West Germany have fallen by about 15 percent in the last decade. In France, the decline in hours worked has been about 25 percent; in Great Britain, about 30 percent.

But the European countries have seen the other half of the coin: Fewer workers has meant higher hourly wages and productivity for those workers. It's hard to measure wages and productivity across a variety of countries, since it involves adjusting for each country's different industrial structure, inflation rates, and exchange rates. But Richard Freeman, a Harvard economic professor, has described the overall trade-off this way:

"The United States paid for job creation with slow growth in wages and productivity. The magnitude of the trade-off was such, moreover, that despite the fact that employment/ population rates and hours worked increased in the United States relative to OECD-Europe, per capita gross domestic product grew at the same 1.3 percent rate. From this perspective, Americans worked harder for the same gain in living standards as Europeans."

Because of its steadily expanding pool of jobs, the United States is a far better country in which to be looking for work. On the other hand, European countries offer increasing paychecks and decreasing hours to those who are already working. The United States is better if you're trying to get into the labor market; Europe is better if you've already got a firm niche.

Although they are not usually described this way, many economic policies proposed for the United States would have the effect of making the job market in this country more European. A higher minimum wage, better employer health insurance, shorter hours, paid parental leaves, employer-provided day care, higher social security benefits, more vacation, higher disability insurance -- all these and many other proposals would raise the compensation of workers, but at the cost of fewer jobs.

Personally, I think most European countries have gone too far in sacrificing job creation. It has become so difficult to enter the workforce in Europe that, according to Freeman, about 45 percent of the European unemployed have been without a job for more than a year. In the United States, the comparable figure is less than 10 percent.

But the United States may have gone too far as well in making job creation the primary item on its economic agenda. Right now, about two-thirds of U.S. adults either have jobs or are looking for work. That proportion is the highest of any industrialized country, and it has been increasing.

Should the nation aim to have 100 percent of its adults working 40 hours a week? Or is it time to consider giving more weight to some other human priorities?

<< Back to 1989 menu