[Note: updated slightly in response to good comments below.]
The political analyst Charlie Cook's weekly column, available by free e-mail subscription here is a real treasure, and even though he's a horserace analyst, it usually offers much more than just the horserace. There's a single paragraph in today's column that I think sums up what we need to know about the economy and jobs better than anything I've read:
In December, the CEO of a California-based high tech firm told me that "there is no amount of overtime that we will not pay, there is no level of temporary services that we will not use, there is no level of outsourcing or offshoring that we will not do, in order to prevent us from having to hire one new, permanent worker in the U.S." As I travel around the country, meeting with business leaders, I hear similar, though less succinct thoughts in almost every sector and every part of the country. U.S. wages, health care, and other benefit costs have gotten so high -- and the press by investors for high stock prices is so great -- that the premium is on wringing every last bit of work out of as few employees as possible, to do anything but incur the costs of adding permanent employees. [emphasis added]
There is a lot to this anecdotal paragraph. First, it puts outsourcing/offshoring in context. It is not a phenomenon to be studied and accepted or discouraged or encouraged in isolation, but part of a larger trend that include various techniques to avoid actually hiring people.
I know of plenty of companies, large and small, as well as foundations and nonprofits where the stock price is not an issue, that are currently obsessed with limiting the "headcount" in just this way. They might spend more on consultants, on training short-term staff, on overtime, or on technology, but as long as they keep the actual number of employees from increasing, everyone's happy, or, I should say, management and shareholders are happy. This is a new phenomenon, different from the management-tier downsizing of the early 1990s, and also different from a recession in which companies are trying to cut short-term costs. Our entire nation is in the grip of Headcount mania.
Second, it strengthens a point that was true in the prosperous period of the late dot-com boom as well as today: We have been consistently invited to give up security in exchange for short-term prosperity. More overtime, more consulting, and more domestic outsourcing mean that some people and their families are doing well -- often better than they would be doing on a salary, and often with the chance to start their own businesses, even if it is doing just the same thing they used to do as an employee. Other examples of the tradeoff: We are rapidly giving up defined-benefit pensions, which ensure a fixed income for life, in favor of defined-contribution plans, which involve individual stock market investments, with the potential for greater returns but more risk. In calling once again for private accounts in Social Security, Bush is asking to do the same with that portion of national savings. We are giving up savings that used to be held in passbook accounts and certificates of deposit, in favor of mutual funds and stocks. These tradeoffs are not all bad. For many people, especially when we have a certain amount of security in the form of skills, or financial support or a home, there is vastly more opportunity in this economy than in the economy of the 1970s. But the loss of security comes at a huge price.
This must be part of the case for government going forward. Government, under the liberal consensus of the New Deal through the 1970s, did not redistribute income. Rather, government's greatest achievement was to create SECURITY -- the kind of security that created the opportunity to join the middle class. Deposit insurance, pension insurance, COBRA (the provision that allows people to maintain health insurance after losing a job), unemployment insurance, etc. -- these were the great achievements of American liberalism. And they are either becoming irrelevant, or completely neglected in the current climate. In the recession of the early 1990s, for example, there was a huge bipartisan effort to ensure that Unemployment benefits were extended again and again, even though, under the budget rules at the time, every extension had to be paid for with cuts elsewhere in the budget. Even though there is no such budgetary constraint today, we have now allowed the average period of unemployment to reach a record, and yet allowed the extended federal program that provides benefits beyond 26 weeks to lapse months ago.
As a candidate, Kerry should begin to talk about the role that government can play in providing the security that people need to navigate the rough waters of the economy. It is a role that Bush completely overlooks, or opposes, but that even liberals rarely talk about.
Third, the Cook paragraph shows that we must do something about the costs that prevent American businesses from hiring. Wages, at the low end, are not too high -- they're too low. (This resistance to hiring must not be used as an excuse to put off raising the minimum wage from its scandalous level of $5.15/hour, since the problem is not with low-wage workers but with workers whose skills allow them to demand higher wages.) The part of the problem that we can solve, must solve, is health care. In addition to the many injustices, inequalities and hassles in our health care system (to the extent that it can be called a system), there is the fact that it is a huge disincentive to job creation. Health care costs can represent up to a quarter of a low-wage worker's compensation, but most of all, they are totally unpredictable and going up rapidly. It means that every time a good (i.e., health-insurance-providing) company hires a permanent employee in the U.S., they take on a totally unpredictable burden, the cost of health insurance.
There is no reason that risk should be the burden of some employers, while other employers evade health care costs entirely. This is why I find the idea of a system in which health insurance is attached to the individual rather than the job so appealing. It not only ensures near-universal coverage, it gives business predictability in their health care costs and requires all businesses to contribute, rather than letting some employers take advantage of others. The New America Foundation has the most detailed approach here, in a readable and persausive paper.
Finally, we should think about how we can change the culture of the corporation so that they feel less pressure from investors on the stock price. I don't expect politicians to make the argument that corporations should feel some responsibility to someone other than their owners, even though the limited-liability corporation is a creation of the government, and in fact another way of providing security so that people can take risks, and therefore the public has a right to ask for certain behavior in return. But even short of that horribly radical idea, companies should feel some flexibility to take a long-term approach, one that might depress the stock price in the short term but lead to a more profitable and vibrant company in the long term. I won't say more about this, because I know very little about it, but it does seem to be part of the story of the economy.