On February 13, 2013, Robert Shapiro writes in The Washington Post:
As President Obama said on Tuesday: The hardest economic challenge facing the country doesn’t involve tax reform or fiscal cliffs. The critical question is: What has happened to the strong job creation that was the economic norm in the United States from the 1950s through the 1990s?
For many on the left, the blame lies in slow growth. If only demand were stronger — cue, more stimulus — jobs would come back in large numbers. For many on the right, the fault lies in deficits and regulation. As Sen. Marco Rubio argued in the Republican response toObama’s State of the Union address, businesses will hire in large numbers again only if Washington will do less of everything. But analysis shows that over the past decade, neither stronger growth nor unfettered markets has been enough to prod U.S. companies to create jobs at anywhere near the rates seen in previous decades.
Weak job creation has dogged both the Obama presidency and that of his predecessor. Since the current recovery officially began 44 months ago, in June 2009, the number of private-sector jobs has grown, on average, 1.25 percent per year. These meager gains have confounded Obama’s economic advisers, whose forecasts in early 2009 show they expected a normal rebound in jobs after U.S. businesses shed nearly 9 million positions in 2008-09. But slow job growth appears to be the new norm: Over the first 44 months of the 2002-07 expansion, under President George W. Bush, private-sector employment grew even more slowly, expanding an average of just 0.72 percent per year.
The most powerful forces at work here are globalization and technology. As globalization has created tens of thousands of new businesses around the world, competition everywhere has intensified. The spread of information and Internet technologies across much of the global economy has also given consumers and businesses access to countless new outlets and suppliers, further intensifying competition. The result is that businesses have lost a lot of what economists call their “pricing leverage.” That means that when a firm’s costs rise — as they have steadily for energy and health care over the past decade — businesses cannot pass on all of their additional costs in higher prices. That, in turn, means businesses have to cut other costs — and they have started with jobs and wages.
What policies can help under these new conditions? On Tuesday the president suggested public-private institutes to develop new manufacturing technologies, access to training in advanced technologies and more funds for infrastructure. But the best approach would be to directly reduce the cost for business to create more jobs.
