The U.S. Jobs Miracle
Not the model it's touted to be
by Edward S. Herman
Z magazine, July / August 1998
In both Europe and the United States, the substantial growth
in U.S. jobs over the past several decades has been repeatedly
cited in support of the view that a "flexible" labor
market is the solution to the problem of unemployment that has
beset the West once again. "Flexible" is a euphemism
for "unorganized and unprotected by unions or government
regulation," and the implied remedy is a weakening of labor
organizations and power, along with changes in government labor
and welfare policies, that will allow wages to be lowered and
kept down, and working conditions to be set by employers without
The "flexibility" concept fits perfectly the ideological
and economic demands of the corporate community, which wants labor
costs and the social wage reduced and the government to serve
business, not labor and the general citizenry. In the corporate/neoliberal
view, direct government service to ordinary citizens increases
business costs and reduces "competitiveness," and it
is opposed and vetoed with increasing effectiveness by financial
markets and corporate-funded politicians. In the neoliberal order,
the only allowable gains to the general populace must trickle
down from successful business endeavors, and policy is oriented
toward increasing business profitability-fattening the geese that
lay the golden GDP eggs.
An important part of the supportive ideology is the claim
that globalization now demands competitive costs, and with low
wages and meager welfare provision abroad, harmonization downward
is needed to preserve and increase jobs. Within this framework
of thought, the U.S. is portrayed as a model, where "flexible"
labor markets have allowed jobs to soar, giving us the best of
all imperfect worlds.
It is true that the U.S. model has produced a lot of jobs
over the past several decades. Employment grew by 41.6 million,
or by almost 49 percent, between 1973 and 1996, and by 17.2 million
between 1987 and 1997, and the U.S. unemployment rate of 4.3 percent
in mid-1998 compares very favorably with that of France, Germany,
Italy, and Great Britain.
But there are three problems with the model. First, its success
in producing jobs has not resulted from the flexibility of its
labor market. Second, the jobs it has produced have not been good
ones by any measure. And third, the social costs of the application
of the U.S. model have been very large.
Jobs through deficit spending. U.S. jobs growth cannot be
explained by low wages and deregulated labor markets. U.S. jobs
growth was even better relative to Europe's in the cycle of the
1970s, when the U.S. welfare state was still virtually intact,
than in the 1980s when labor and the welfare state were in retreat.
Canada's job expansion record in the 1980s was better than that
of the U.S., despite greater market regulation and stronger unions.
Spain has had far lower wages than France and Germany, but its
unemployment rate has been substantially higher.
The prime cause of the relatively large growth in U.S. jobs
has been deficit spending. During the Reagan years (1981-1988)
the deficits were so large that the national debt almost tripled,
and sizable deficits continued through the Bush and well into
the Clinton years. The Reagan-era deficits were based on massive
increases in military spending, along with regressive tax cuts
that contributed to a stock market boom and spending orgy by the
affluent. This expansionary fiscal policy was supplemented by
a monetary policy that, while tight enough to contain wage increases,
was geared to counter-cyclical action.
Europe also had sizable deficits, but they were produced by
the shrunken revenues and enlarged welfare spending of recessionary
conditions, not by a proactive fiscal policy as in the U.S. European
monetary policy, also, has had a more deflationary bias, as a
result of Bundesbank domination, inflation fears, greater exchange
rate vulnerability to fiscal deficits, and the budget constraints
imposed by the Maastricht agreement. Fiscal and monetary policy
have simply not been employed to combat large-scale unemployment.
Another factor making for higher U.S. job creation rates than
in Europe has been the more rapid growth of the U.S. working-age
population, resulting from higher immigration and birth rates.
Still another factor has been the large job decline in European
agriculture consequent to the gradual withdrawal of protection,
causing a recent yearly fall in agricultural employment of 4 percent
(versus 1.6 percent in the U.S.). These factors have probably
been more important than labor market flexibility in explaining
differences in job creation rates.
It is true that in the 1980s and 1990s the U.S. Iabor market
was made more flexible by corporate and government policies working
in tandem. Corporations engaged in ruthless downsizing, bargaining
down of labor through threats to relocate and actual relocation
to union-free territory, and union-busting. They were aided by
government policy, which included imposing a major recession in
1981-1982, direct union busting (Patco) as well as policy support
for often illegal corporate anti-union actions, reduced unemployment
compensation, allowing a fall in the real minimum wage, and forcing
large numbers of poor people into the labor market through cuts
in public welfare. These actions severely weakened the union movement
and labor's bargaining position. But the changes had a far more
important effect on job pay and quality than on the number of
Excessive unemployment. Although the U.S. has created many
jobs and gotten the official unemployment rate down to 4.3 percent,
it has still maintained a reserve army of unemployed large and
insecure enough to prevent any significant escalation of wages.
This has been assured by Federal Reserve policy, which focuses
on the inflation threat, which is viewed as turning on labor costs.
Unemployment is kept at a level sufficient to prevent any substantial
labor cost increases, and this policy, along with the more "flexible"
labor market, has been crucial in causing the median real wage
of non-supervisory workers (80 percent of the total) to be lower
in 1998 than it was in 1973. Only in 1997-1998 have real wages
shown a modest upswing, after many years of decline or stagnation
that continued for five years into the cyclical expansion that
began in 1991. Alan Greenspan will not tolerate much more of this
The Fed's long success in preventing wage increases suggests
that the U.S. unemployment figure is understated. The U.S. number
in February 1998 excludes 4.3 million "discouraged"
workers (who have not looked for work in the past month) and 3.9
million part-time workers who would prefer full-time work. Adding
in discouraged workers, the U.S. unemployment rate is 7.8 percent,
and adding in the involuntary part-time workers gives us an underemployment
rate of 10.6 percent. Economist Fred Pryor notes that in the mid-1960s,
6.3 percent of prime age men (25-50) were unemployed or out of
the labor force, whereas in March 1997 that number was 11.9 percent.
Nor do these numbers include the prison population of some
1.3 million men of working age, a large fraction of whom would
have been unemployed if they had not been incarcerated. Another
very large number of people are employed to guard and manage the
prisons. The system of incarceration is unique to and an integral
aspect of the U.S. model, flowing from the maintenance of loose
labor markets, the weakening of welfare state protections, the
failure to deal with racial discrimination and segregation, and
the use of racial scapegoating as a political tactic to facilitate
Poor and declining job quality.
The quality of U.S. jobs has deteriorated since 1973, as measured
by wage levels, benefits, working conditions, and job security.
As noted, the median real wage of non-supervisory workers was
lower in 1998 than it was in 1973. New jobs have been heavily
concentrated in low-wage sectors. Between 1979 and 1995 there
was a net loss of 2.2 million jobs in the goods producing sectors,
while 29.1 million jobs were created in services. The former sector
had an average wage of $20.22 in 1993, whereas services' average
wage was $15.51. The relatively low-paying retail trade and business,
personal, health, and temporary services accounted for some 80
percent of new jobs. There have been numerous attempts by apologists
for the status quo to prove that new jobs are in high wage occupations
and sectors, but this is clearly wrong for the big job surge of
1979 to 1995. The most recent studies invariably fail to demonstrate
that new workers in relatively well paid occupations are themselves
well paid (only occupational or sectoral average pay is readily
available), and the contrary is suggested by the steady decline
of the median real wage through 1996 (Jared Bernstein, "Anxiety
over Wages Still Justified," Economic Policy Institute, 1996).
The stagnant and declining wages of the 80 percent, 1973-1996,
were offset in part by longer hours of work by employed workers,
a sharp increase in multiple job holding, and a surge of women's
entering into the work force, often driven by the need to compensate
for declines in men's wages. All of these developments, while
increasing family incomes, reflect welfare losses for those driven
to these compensatory actions.
Through 1996, also, the U.S. model provided a steady decline
in employee job stability and in employee benefits (numbers covered,
extent of benefits), a growth of involuntary part-time and contingent
labor, increased accident rates, and an increasing intensity of
work under "lean" production methods and "management
by stress." (Mishel, Bernstein and Schmitt, The State of
Working America 1996-97; Kim Moody, Workers in a Lean World, 1996.)
In this new work environment, Taylorist methods have been refined,
with more frequent and rigorous studies and recalibration of tasks
to extract maximum effort, causing media and even business reference
to a return to "Dickensian" conditions, "throwaway
workers," a "slash and burn" treatment of the labor
force, and "creating something like a Third World economy
right here in the U.S."
The U.S. model has produced an increasingly two-tiered system
of privileged executives and core skilled workers, on the one
hand, and a great mass of unskilled and less fortunate skilled
workers who have done poorly, on the other hand. The former, comprising
at best 20 percent of the working force, can also be broken into
two tiers of skilled workers who have made modest real wage gains,
and a specially privileged management group of 2 to 5 percent
at the top, who have done exceedingly well and reaped gains well
in excess of productivity advances. Average CEO pay grew by 152
percent between 1978 and 1995, more than 5 times as rapidly as
productivity. This same small group captured a very large fraction
of the wealth gains from the huge rise in the stock market over
the past 20 years (66 percent went to the top 10 percent). The
lower 80 percent, with minimal stock ownership-some 60 percent
own no stock, directly or indirectly-have had stagnant and falling
incomes, and have therefore not shared at all in productivity
advances of the past 25 years.
With its huge proliferation of low wage employment, and substantial
declines in real wages in this large sector, the U.S. model has
nurtured an important new category called the "working poor."
These comprise families with members in full-time employment pulling
in incomes below the poverty level. The number of male workers
earning Iess than 75 percent of poverty wages more than doubled
between 1973 and 1995, and the number of very poor working families
(incomes less than half the median, spending 50 percent or more
on housing) rose from, 1.1 to 1.4 million between 1991 and 1995.
The overall U.S. poverty rate of 13.8 percent and the 21.5 percent
rate for children tower over those of its European and Japanese
rivals. There are an estimated 30 million people who suffer from
hunger in this richest of the world's countries (up by 50 percent
Just as the U.S. model disconnected wages and productivity
growth, so it has produced a new disconnect between economic growth
and poverty reduction. In earlier years economic growth meant
a decline in poverty rates; but between 1973 and 1995, despite
an over 30 percent increase in per capita productivity, U.S. poverty
A Class Warfare Model
It is clear that the U.S. model is one of successful low-intensity
class warfare, with the corporate elite taking advantage of its
improved economic and political position to force gains at the
expense of the 80 percent. It has weakened and bargained down
labor, and, with the help of mainstream intellectuals and media,
it has reshaped government policies to serve its own interests.
Even today its political representatives push for tax legislation
that will further restructure taxes to the advantage of the beneficiaries
of the gains of the past 25 years.
The new tax and labor policies have not improved U.S. productivity
growth, which has remained in the vicinity of 1 percent a year
since 1973, down from the prior 25 years, and, for the years 1979-94,
substantially lower than that of France, Germany, Italy, Japan,
and Sweden. The elite's gains have come from its success in containing
wages, ruthless downsizing, regressive tax changes, and harsh
cutbacks in the welfare state, which have been translated into
high profits, high executive incomes, and huge stock market gains.
With weak productivity growth, there has been a virtual zero sum
game, with the elite picking up the chips at the expense of the
losers-80 percent of the population.
If we assume that the purpose of the economy is to serve and
improve the welfare of the entire body of citizens, the U.S. model
has clearly been a major failure. It has served a minority, and
the majority have not only failed to share in the income gains
yielded by the model, they have suffered from reduced benefits,
greater job instability and stress, and a diminution of expectations
and sense of hope for the future. There can be little doubt that
the high crime and drug use rates in the U.S. are related to the
country's failure to provide decent work, help, or encouragement
to vast numbers of its own citizens. Inequality has adverse effects
on health and mortality through a variety of channels. Richard
Wilkinson's important studies show that in Britain during the
Thatcher years and in the U.S. during the Reagan term, the sharply
increased income inequality had significant effects on mortality
rates, working through stress related diseases and crime. There
is also evidence that the learning capabilities of children are
adversely affected by economic distress. (Richard Wilkinson, Unhealthy
Societies: The Afflictions of Inequality, 1996.)
A part from its blatant class bias and short-run anti-general
welfare effects, the U.S. model is immensely dangerous for the
future of human society. It represents a short-term "apres
moi le deluge" approach, in which the dominant class exploits
its advantages ruthlessly, despoiling both the human and natural
environment, weakening any sense of community, polarizing and
creating a huge mass of alienated, dissatisfied, and sometimes
desperate people, and relying on a new police-prison complex to
keep them in check. The facade of democracy within which this
takes place is gradually losing credibility and may well be swept
away in the wake of social upheavals that are likely to follow
the continued application of the model.
The U.S. model also sows the seeds of financial collapse,
both at home and globally. For both, deregulation of finance and
capital markets, and the erosion of regulatory capabilities in
a privatizing and "anti-government" world, have helped
create a casino-like market pervaded by speculation, essentially
unregulated. In contrast with lucky Thailand, South Korea, and
Indonesia, which had been brought fully into the global financial
markets, the press has noted that poor China, which still maintains
significant capital controls, is not yet so well integrated and
is therefore likely to escape serious damage in the latest crisis.
Well, maybe in a few more years China will have had adequate "reforms"
to qualify, and in a few more years global crises may well be
beyond the bailout capabilities of the U.S. and IMF.
Within the U.S., feedbacks from external crises, the high
level of consumer debt and the vulnerability of a greatly inflated
stock market provide interrelated threats to stability. But underlying
these, here and abroad as well, the impact of the U.S. model on
the lower 80 percent of non-beneficiaries poses the greatest threat.
Excess capacity threatens in many lines of activity as the 80
percent don't have the incomes to buy all that immense flow of
goods (Alan Simpson and Colin Hines, Who Will Buy?, 1998). Furthermore,
there is the always present danger that they will revolt against
their oppressors, and, even if not removing the rascals, may force
them to raise wages and rehabilitate the welfare state, thereby
making the geese leaner, taking away some of their golden eggs,
and reducing "competitiveness."
It may of course be argued that the U.S. model is simply mature
capitalism, the Marxian model in pristine application, and that
everybody is moving in this direction under capital's newfound
power and competition in the New World Order; that this will continue
until the system produces the counterforces and crises that will
bring it down altogether.
There is little doubt that the U.S. model represents the global
trend, but whether it will be fully realized and cannot be contained
short of this, and without coming to a violent end, is far from
clear. Democratic structures remain in place in the West and are
common elsewhere, and the profoundly undemocratic workings of
the U.S. model produces resistance that cannot be dismissed in
advance as hopeless. That resistance assumes many forms, but using
the instruments of democracy to try to preserve and enhance social
democracy must be one of them.
That resistance should not be stymied by the ideological successes
of capital. One of them, that the U.S. model is a jobs, productivity,
and welfare enhancing triumph, I have shown to be false. A second
is that globalization and the demands of "competitiveness"
must rule out social democratic policy options. There can be no
doubt that globalization constrains social democracy, but its
limiting effects depend on allowing the market full hegemony.
This should not be permitted-democracy and the choices and welfare
of national majorities should take precedence over the demands
of the business community, and with determination and a resurgent
democracy they can.
What forms should these efforts take? Capital controls should
be put in place and transactions taxes imposed on foreign exchange
trading to curb speculation and to allow governments to prevent
finance capital from counteracting policy decisions deemed important
by democratic governments. International agreements such as GATT,
NAFTA, and the proposed Multilateral Agreement on Investments,
which give transnational corporations (TNCs) and supranational
bodies rights to override democratic polities should be drastically
revised or-as is clearly the case with the MAI-scrapped altogether.
Taxes on TNCs should be restructured to favor domestic investment,
and TNC obligations to serve their home populations should be
made clear in law and policy. Macropolicy should cease to be almost
entirely preoccupied with the inflation threat and should give
substantial weight to maintaining full employment. Inflation threats
based on negative foreign exchange market reactions to social
democratic policies should be attacked by using an incomes policy
(collective and group regulation of wage and price changes), capital
market controls, and, if possible, coordinated policies among
countries. But national policies to protect and serve the majority
cannot be sacrificed to the demands of the global market.
The objectives of national policies must be changed from service
to the corporate community to working in the interest of national
majorities. All of the needed policy actions and changes therefore
hinge on a recapture of the state and state policy by these national
majorities. That is the greatest challenge: and it rests on an
understanding and reframing of the issues, a refusal to be blackmailed
by claims of No Other Options, the rebuilding of the labor movement
and its reorientation toward pursuit of a broad social agenda,
and the development of other effective grass roots organizations.