The Great American Job Machine: "Secrets and Lies." (America's Economic Aspects)

Article excerpt

The following excerpts are from Straight Talk[R] - From the Desk of the Chief Economist, Gail Fosler, June 1997, published by The Conference Board, reprinted with permission.

During the past year, the U.S. unemployment rate dropped to 4.8 percent, its lowest level since 1973, while unemployment rates in Europe are above 10 percent and continue to rise. Today the U.S. economy is adding two to three million jobs per year, compared with the European Union (EU) where employment growth has come to a halt. Equally striking, the U.S. labor force is growing by 1 to 2 percent per year (i.e., almost two million people per year), while the European labor force has not increased measurably since 1991 (i.e., less than 1 percent). This issue of Straight Talk explores some of the popular "myths" (or less politely, "lies") given for superior U.S. job growth, and attempts to identify some less well-known lessons and observations (or "secrets") that may be useful in understanding the very different performance of European and U.S. labor markets.

Lie #1: The United States Has More Small Businesses Than Europe. The structure of the U.S. small business sector is very different from that in Europe. The U.S. economy has 22 million small and medium enterprises, compared with 18 million in Europe. Of these 22 million SMEs, 16.5 million are self-employed workers with no employees - more than 50 percent greater than the number in Europe. Only 5.5 million of the U.S. SMEs have salaried workers, compared with 8 million in the European Union.

Lie #2: The United States Is a More Flexible Labor Market. Every European country has high rates of job creation and job destruction that are not very different from the U.S. For example, 19 percent of all U.S. manufacturing jobs change each year; comparable numbers for France and Germany (total private) are 23.3 percent and 16 percent, respectively. (Estimates of total U.S. job reallocation - including the service sector - are not very different in the aggregate from the 19 percent in manufacturing.) What is very different in the U.S. is the high rate of non-manufacturing job creation that drives the U.S. job machine. This causes U.S. job creation to outweigh job destruction in the non-manufacturing sectors by an overwhelming margin.

Lie #3: U.S. Jobs Are Bad Jobs. Not so! Data show that the increase in U.S. employment, while concentrated in somewhat low-paying industries, has grown relatively faster in high-paying occupations than in low-paying ones. Since 1989, the pace of job growth in managerial and professional specialty (i.e., programmers, financial analysts, technicians, etc.) occupations is twice that in the lowest-wage occupations.

What is most striking about these data is the concentration of employment growth in both high- and low-earning occupations, with the middle groups continuing to recede [ILLUSTRATION FOR CHART OMITTED]. This "hollowing-out" of the middle earning group illustrates the impact of organization and information technologies in the workplace. …