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April 9, 1993
"The Best Job Creation Program is a Healthy Economy"
San Jose Mercury News

By Timothy Taylor
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THE LAST few years have made it obvious, in case there was ever any doubt, that working hard is no guarantee of keeping your job in a capitalist economy. Workers who had plied their trades within the defense industry are being laid off as military spending is scaled back. Management mistakes and new competition have led to enormous layoffs at emblematic American companies like General Motors, IBM and Sears -- but most of the workers at those companies were putting in an honest day's work and had no control over the fortunes of the company.

Other American workers are threatened by foreign competition; for example, signing the North American Free Trade Agreement with Mexico will displace perhaps 150,000 people from their jobs, again through no fault of their own.

A total of 15.3 million jobs were lost between 1987 and 1992 -- roughly one of every eight jobs in the U.S. economy -- for reasons given in the table above. Government statisticians define 12.3 million of those workers as "displaced," which just means that they lost their job for one of the first three reasons in the table.

Nearly half of the workers displaced between 1987 and 1992 had worked with their employer for more than three years, according to the Bureau of Labor Statistics. Focusing on this particular group, where the dislocation and disruption are presumably greatest, the bureau found that about two-thirds of these workers had new jobs by January 1992. Just over half were earning as much or more than in their previous job; about one-sixth were earning only slightly less; but one-third of the re-employed workers had seen their earnings sink by more than 20 percent.

Of course, the Bush administration didn't invent job losses, although it sometimes sounded that way during Bill Clinton's presidential campaign. The story of displaced workers is only a portion of what is happening in the labor market. Often, the reason one worker loses a job is because another worker is getting one.

Workers lost jobs at IBM, for example, partly because of success and growth at competitors like Intel and Microsoft. Even as free trade with Mexico displaces some workers, every economic study not done by a labor union estimates that the new opportunities for trade will create even more jobs. As money shifts away from defense spending, it will create new jobs and opportunities in other parts of the economy.

An average of 2 million workers lost their jobs every year during the 1980s, according to a recent study by the Congressional Budget Office. But taken as a whole, the labor market during the 1980s created not only enough jobs to offset those losses, but also 18 million additional jobs. The economist Joseph Schumpeter described capitalism as a process of "creative destruction." If that phrase sounds a bit contradictory, it's because capitalism often feels that way, too.

Too often, when policy makers talk about displaced workers, the focus is on why people lost their jobs. For example, the government has a special program for some of those who lose jobs because of foreign competition, and the Clinton administration is mulling over a program for those who lose jobs because of defense cutbacks.

When it comes to extending personal sympathy, the reason someone loses a job makes a difference. But when government policy is at stake, a worker who loses a job because of foolish corporate management deserves the same support as one who becomes unemployed because of foreign competition. A displaced worker who lives in a region hard hit by defense cutbacks deserves the same help whether that worker was directly employed by a defense contractor, or by a company that sold to the contractor directly, or by a company that sold to the subcontractors of the defense company, or whatever.

Unemployed workers are a social disaster not because of the reason they lost their jobs, but because their skills aren't being used.

Between unemployment insurance, severance pay and welfare programs, America does a reasonable job of providing short-term income assistance to displaced workers. However, the U.S. economy does less well at helping unemployed workers hook up with new employers, or at providing retraining.

While I am generally supportive of programs to retrain workers, I also find myself wondering whether a government that has grave difficulties educating its children in public schools is likely to be very successful in retraining its adults. My guess is that any successful job training will require considerable initiative and support from private business.

Public policy tends to worry more about those who are being displaced from jobs than it does about creating economic conditions that favor the creation of new jobs. But the most powerful job creation program, and the greatest assurance for displaced workers that they can find another job, is a healthy and growing economy.

More than 15 million workers lost their jobs between 1987 and 1992.

Reason Number of jobs lost
Plant closed down/company relocated 5,659,000
Slack work 4,810,000
Position or shift abolished 1,823,000
Seasonal job completed 493,000
Self-operated business failed 462,000
Other reasons 2,069,000
Total 15,316,000

Source: Bureau of Labor Statistics, unpublished tabulations from January 1992 survey.

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