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The Economy Is Improving, but Where Are the Jobs?
Suzanne Bump

Suzanne Bump says a recent, slight drop in unemployment in Massachusetts bodes well for the Bay State.

Just before President Obama hopped aboard Air Force One en route to China earlier this month, he announced a December ‘jobs summit’ to address a big question facing his administration — will this be a jobless recovery, as many experts are predicting?

And the focus of the summit will be on preventing, or minimizing, such an eventuality.

Nationally, unemployment has crept over the 10% mark, and there are signs that many companies that have made do with fewer employees in an effort to ride out the downturn are still cautious about hiring again. This has prompted questions, both regionally and nationally, about what kind of recovery can be expected if there is no real surge in employment — and if such a development could even be called a recovery.

Gerald Epstein, a professor at the Political Economy Research Institute (PERI) at UMass Amherst, doesn’t believe that term applies to what he’s seeing.

“If you have an unemployment rate that is measuring 10.2%, that doesn’t take into consideration discouraged workers, or part-time workers who want to work full-time, because then it’s upwards of 17%, and for certain demographic categories, like young people, it’s over 20%,” he explained. “Statistics like that are not those of a recovery.”

Elaborating, he said the current surge on Wall Street, which has seen a more-than-50% climb since March, cannot be expected to continue unless or until there is substantial job growth.

“The stock markets can’t continue to go up if the underlying basis of the economy, people’s ability to work and spend and consume, isn’t supported,” he said. “Any growth will just be a bubble, and an unsustainable one at that.”

Here in the Bay State, the numbers look a little better, jobs-wise, at least according to the state Office of Labor and Workforce Development, which announced last month that unemployment had actually dropped from 9.3% to 8.9%. LAWD Secretary Suzanne Bump told BusinessWest that such news is not only encouraging — in that things are not getting any worse — but also heralds signs of the Commonwealth’s climb onward and upward.

However, she added that job loss is a significant concern for the Patrick administration, and that while the state has seen some growth in key sectors — health care, professional, scientific,and business services — there are still some residual effects from past recessions.

“Coming out of this recession, we will be regaining some jobs,” said Bump. “But it has taken us a long time to regain those past job losses. In fact, I’m not sure that we did regain all of the jobs that we lost during the last recession of 2001-02.”

For its Economic Outlook 2010, BusinessWest looks at the recession from the lens of employment, both regionally and nationally. Epstein and some his colleagues at PERI discuss the likelihood of a jobless recovery, but also about ways in which job growth can be stimulated.

Help Wanted

On the day the latest unemployment figures were released in the Bay State, Bump told BusinessWest that such numbers bode well for the state’s economic health.

“We are as surprised as anyone by the magnitude of the drop in unemployment,” she said. “It is evidence that this particular recession continues to defy economic predictions.”

The construction sector continues to be hard-hit, she noted, adding quickly that while this is bad news for the overall health of the state’s economy, that particular sector isn’t as dominant an economic force as it is in other states. However, key sectors that are “growth engines,” as she called them, for the Bay State’s economy are gaining stability.

“Looking at health care,” she offered as one example, “we’ve maybe missed one beat over the past year, and in general they have been in an upward trend. I think that, literally, there was one month that we saw a contraction in health care and social assistance.”

The sectors that are seeing growth in Massachusetts are those that require advanced skills or education, said Bump, adding that, consequently, the Patrick administration has ambitious goals for its education-reform agenda. Citing training that leads to credentials, certifications, and post-secondary degrees as key areas of necessary spending, she said that, “if we are going to grow our economy, that’s what we have to focus on. Job training is not just about putting someone through a simple computer class, or giving them advanced manufacturing training.”

But while Bump sees reason for optimism, Epstein and others at PERI sound far more somber notes, and on many aspects of the employment scene.

According to Jeannette Wicks-Lim, an assistant research professor at PERI and author of several books on wages and employment in the U.S., while many are understandably focused on the number of jobs lost and the potential for gains, it is also important to bracket that with the quality of existing employment nationwide.

“When you don’t have job growth, there is slack in the labor market, and jobs don’t get wage gains,” she explained. “It’s great that you do have a job, but if your pay is stagnating over time, then it becomes harder and harder to meet your budget’s needs.”

Meanwhile, Epstein, Wicks-Limm, and and Robert Pollin, co-director at PERI, say the forces, or tools, of recovery are simply not strong enough for them to express much optimism for at least the short term.

Two main tools the government has been employing to help shore up the nation’s stability are stimulus funding and low interest rates, which these days hover close to zero. However, some ask, if that low-interest money doesn’t get into the right hands, then what is the benefit?

“It’s not generating real loans to small businesses, to businesses that want to borrow to invest to hire new workers,” said Epstein. “A lot of the money that is available right now is going into speculation that’s driving up stock prices, or it’s going overseas and driving up the value of other currencies, but it’s not going into generating new jobs.”

Work in Progress

Pollin said that such untapped reserves could offer a very real possibility of an immediate boost to the nation’s business sector — those very entities who can and would contribute to increased job creation.

“There’s about $700 billion sitting in bank reserves that wasn’t there a year ago,” he explained. “Banks received all this bailout money, and now they’re sitting on it in cash; they’re not putting it out. There’s no reason to lower interest rates if the banks are just going to sit on that money.”

Incentivizing the distribution of such money into the economy wouldn’t cost taxpayers a single penny, he added, and loan guarantees would encourage lenders to loosen their grasp on the funds.

“The government needs to create ways for loan guarantees, with other kinds of benefits, for those banks to get the money out,” he said. “Yes, loan guarantees have gotten a bad reputation because of TARP, but at the same time, we have massive loan guarantees in the economy, about $300 billion per year in student loans, small-business loans, agricultural loans … we do have a reasonably effective system.

“The way you create jobs,” he continued, “is to spend money.”

Increased spending on jobs could very easily occur, all three professors agree, in sectors that would not migrate overseas. Echoing a sentiment often heard lately in this region, Wicks-Lim said that “we know we could invest our resources in a green economy, and a lot of jobs could be created by focusing our energies there.”

Pollin said a recent idea put forth by both former President Clinton and venture capitalist John Doerr has both great potential and a great name: Cash for Caulkers. Money could, and should, be invested in energy-saving building retrofits, from the highest echelons of the federal government on down to the simplest of home renovations. But, it is up to Washington, Pollin said, to lead the way.

“The Pentagon itself owns 55,000 buildings in the U.S.,” he said. “If the government just put out a procurement for those buildings, that would be an enormous stimulus, and it saves money down the line.”

Pollin said he has long been an advocate of ideas like Cash for Caulkers. “I’ve been in debates where the questions are, ‘is the return on investment 30%, 20%, 35%, 40%?’ Nobody questions that you get your money back in five years at the most. So, why aren’t we doing it?”

He explained that the market for such large-scale retrofitting is still immature, acknowledging that it is a financial outlay for homeowners at a time when their priorities are on money coming in, not going out.

“Someone once told me, we need to get to the point where we have a McDonald’s for retrofits,” Pollin said. “You call someone, and it’s easy. But the only way it’s going to happen fast is if the government begins this massive spending on retrofits. You hire the 2 million construction workers who have been laid off in the last two years, and that will mature the market and create momentum and publicity for the private market. This could be a major undergirding for a recovery for the next few years.”

Meanwhile, Epstein told BusinessWest that funds must be diverted directly to the states more effectively than has been the case. “Otherwise, we’re going to start seeing large numbers of teachers, firefighters, and other jobs like that joining the unemployment rates,” he said.

Pollin added that these jobs funded by the states are not only desirable, but non-exportable.

“Just think of this — reducing classroom sizes, hiring more teachers,” he said. “This has been a goal for 50 years, raising the quality of education. If the average size of classrooms was 25 students, what if we lowered it to 20? That would increase the number of teachers by 20%.”

The Job at Hand

These are all ideas that will come up during Obama’s jobs summit, said Epstein. But a comprehensive situation still needs to be addressed that will focus on employment and green initiatives, something other countries have already started doing.

“Unless we pursue a green agenda,” said Epstein, “when we start recovering, instead of manufacturing in these kinds of products and having the R&D here, we’re going to end up importing it from abroad. And that’s neither sustainable nor going to create jobs.”

Overall, Epstein and others said the recovery, in whatever shape it takes, doesn’t have to be jobless — and, for the long-term health and well-being of the country, steps have to be taken to ensure that it isn’t.

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