Friday will bring the April jobs report, with economists predicting that anywhere between 100,000 and 250,000 jobs will be created. That would be below the level of 308,000 jobs created in March, but it could still be, on the surface, a reasonably robust number. Still, even if the number exceeds the optimistic forecasts, it could well be far less positive news than the raw figures might suggest. [IMGCAP(1)]
Why? Consider first the jobs numbers for March. The news of 308,000 jobs created got economists and analysts giddy. “It looks like we’ve turned the corner here,” said Ed Potter, president of the Employment Policy Foundation. “I think all things are pointing in a positive direction,” Manpower Inc. Chief Financial Officer Mike Van Handel told the Milwaukee Journal Sentinel. “You can see the job market clearly gaining traction.” But nearly all analysis of the March jobs number ignored a key fact: 243,000 of the 308,000 jobs created — 80 percent — were part-time jobs!
At the same time, other figures suggest a major problem in the economy. The Labor Department’s employment cost index reports that wages and salaries went up by only 0.6 percent in the first quarter of the year, while benefit costs rose 2.4 percent.
What is going on here? Companies, especially in the manufacturing sector, have been under intense price pressure. With revenues depressed, they have been forced to cut costs, and the single biggest target has been labor costs. So employers have cut jobs and tried to compensate on output by increasing productivity.
In many cases, these companies have succeeded smashingly: Productivity has soared beyond our wildest expectations. But as employers cut jobs, they realized something deeper. They sought to cut not just current costs but long-term liabilities from health and pension benefits. So now, as the economy recovers — with a 4.2 percent growth forecast for the quarter — they have little desire to respond by taking on lots of new hires and additional long-term liabilities.
When they do feel the need to bring on more workers, they are hiring temporary or part-time employees first. In addition, some companies are outsourcing jobs to countries where the wage costs are lower and where there are few health-benefit burdens. And last, they are pushing some of their existing employees into consulting positions or part-time status so they can take them off the benefit rolls.
As health costs grow overall, benefit costs for employers grow too. And there is no sign that this situation will change for the better in the near future, even with robust economic growth.
Think for a moment about the political and policy consequences of this dynamic. Even if we have substantial job growth, if the jobs are part-time and more people in the work force are left without health benefits, the level of pessimism about the economy will remain high, and the level of concern about health costs and the availability of care will grow.
This makes the issue of health insurance and the uninsured a huge one in 2004. While health coverage had faded from public view as issues like Iraq and the 9/11 Commission came to dominate the debate, it will be back. And the issue of the uninsured will have a very different resonance than it did in 1994 when it was the centerpiece of the Clinton health reform plan.
It’s not just that the uninsured population has risen from 37 million to nearly 44 million since then. It’s that we have at least an equal number who have been without insurance for a significant amount of time during the past five years. These people, even if some do have insurance now, will be far more receptive to political appeals on health insurance than they ever would have been a decade ago. Expect this issue, which dominated the early discourse of the Democratic nomination struggle until the war overwhelmed it, to return in a big way before the campaign is done.
Frankly, though, the real issue — and one that almost certainly will not be addressed by the candidates this year — is a broader one. The United States, alone among major nations, finances our health insurance through employers. European countries, Canada and many Asian countries provide insurance for workers and their families through the state. Forget whether that is good or bad — it still means that our jobs have the added burden of health insurance costs that jobs in most countries do no have to bear. But at some point, as the job market gets more and more global, we will have to reassess the whole system of employer-provided insurance. I believe the best way to do this is through refundable tax credits, but all the alternatives will have to be considered, sooner rather than later.
There is another related issue that ought to be on the table. The tax cuts of the past three years have been designed to eliminate most taxes on savings and investment, while sharply reducing marginal income tax rates and income taxes for individuals and corporations. What is left uncut? Payroll taxes — which will in fact rise sharply, via the Medicare drug plan. Under the plan, if Medicare costs rise sharply, the burden will shift from general revenues to payroll taxes.
Think about the consequences. At a time when full-time job growth is nearly nonexistent, when global competition for jobs is on the rise, we are adding significantly to the payroll costs of employers and putting a heavy and regressive burden on workers. There is a word for this policy: stupid.
Norman Ornstein is a resident scholar at the American Enterprise Institute.