Job Unfair

The latest report from the U.S. Department of Labor shows that unemployment shot up to 6.4 percent in June, the highest rate in nine years. But an even more chilling statistic is that for 24 months (and counting), employment is lower than it was one year before. The result has been the longest private-sector employment slump since the Great Depression. Beginning in February 2001, the month after George W. Bush took over the White House, the economy has shed 2.6 million jobs -- equivalent to 93,000 workers joining the unemployment rolls each month.

What is especially surprising is that these job losses keeps occurring even as the economy is growing. We aren't experiencing a "jobless recovery" -- more accurately, this is a "jobloss recovery."

From the end of the third quarter of 2001 through the end of the first quarter of this year, real gross domestic product has increased by a total of 4 percent, almost exactly the same amount as during the same interval following the last recession in the early 1990s. But while the economic growth back then produced more than 563,000 jobs, this time around we have lost more than 1.1 million jobs in an equivalent amount of time and with an equivalent amount of so-called growth.

What explains this sharp contrast between the 1990s and today? In a word, productivity. While the productivity of American workers -- measured by output per hour worked -- grew by a modest 3.8 percent between the first quarter of 1991 and the third quarter of 1992, it rose by an astonishing 7.3 percent from the third quarter of 2001 to the first quarter of 2003. Indeed, productivity grew faster in 2002 than at any time since 1950. With such improved efficiency, companies were able to provide a lot more output with a lot fewer workers. And this is precisely what they did, proving that productivity growth is indeed a double-edged sword. It is great for the economy when demand is strong, but it cuts a terrible swath through the labor market when demand is weak.

The only way to reap the benefits of higher productivity growth without job loss is for the economy to grow even faster. And that requires strong and immediate steps to increase demand.

Until relatively recently, America faced a serious supply-side problem. From the oil crisis in 1973 until 1995, productivity growth slipped to an average of no more than 1.2 percent per year. Business was not improving productivity fast enough to permit much of an increase in the nation's output or standard of living. As a result, wages fell and family incomes stagnated. Fixing the supply-side problem required investment in new technology. It took time, but by the mid-1990s, business had succeeded in mastering the new information technologies in almost every industry, from steelmaking to banking.

This helped produce a near perfect economy in the late 1990s. Productivity grew rapidly. Spurred by consumer spending, so did total demand. The result was falling unemployment, rising wages and improved family incomes. For a brief period, we got the supply side and the demand side right, simultaneously.

Around 2000, however, demand began to slip. The supply side kept doing its part, with productivity improving at a rapid clip. But GDP growth did not keep up, yielding a demand-side debacle. The implication for policy-makers is clear: We must act to increase demand and not worry about what is, for now, healthy supply. This is precisely why the 2001 tax cut and the new tax cuts proposed by President Bush make little sense. It's not simply that they favor the rich -- they also do nothing to solve the key economic problem of the day. They focus on boosting investment and therefore productivity -- currently a nonexistent problem -- while doing little to boost demand, which the economy desperately needs.

Instead of cutting taxes on dividends and reducing rates on the rich, what American workers needed was a sharp, short-term stimulus package big enough to generate sufficient consumer demand to match our current productivity bonanza. Such a package should have included a massive increase in revenue sharing to the states, a much bigger package of emergency unemployment benefits and a single-year tax cut aimed at working families. That would have helped strike a jobs-producing balance between demand and supply today. Without that balance -- without the right combination and the right timing for both demand-side and supply-side policies -- the prospect of a prosperous, full employment future will remain little more than an empty promise. We may get growth, but not enough to produce any jobs.

Barry Bluestone is the Russell B. and Andrèe B. Stearns Trustee Professor of Political Economy and director of the Center for Urban and Regional Policy at Northeastern University. He is co-author, with the late Bennett Harrison, of Growing Prosperity: The Battle for Growth with Equity in the 21st Century.