Jobs and the Economy
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TERENCE SMITH: The past year has seen mostly bad news, higher unemployment, corporate scandals, continued slow growth. How is that affecting the nation’s workers and companies? What are the longer-term implications? We’re joined by Christine Owens, director of public policy for the AFL-CIO, and by Martin Regalia, chief economist at the U.S. Chamber of Commerce. Welcome to you both.
Martin Regalia, Labor Day is a suitable time to take a look at the economy, the state of the economy, and how it affects the American worker. How does it look to you?
MARTIN REGALIA: Well, I think it’s really a dichotomy right now. What we see in the long run are good fundamentals, good productivity growth, there’s low inflation.
There’s a lot of potential in our economy. But in the short run, the cyclical economy is just not hitting on all cylinders yet. What we’ve seen is a fast start in the first quarter, and we’ve lost all momentum in the second.
So we’re looking at the second half of the year with a very careful eye, because on the one hand consumers are still spending, but on the other hand businesses are not yet investing. And so we don’t have a lot of underpinnings to our growth; we don’t have a lot of balance in the economy.
And that’s hurt workers because the thing that hasn’t kicked back yet is job growth; there really hasn’t been much in this recovery at all.
TERENCE SMITH: Not enough growth, growth for job growth?
MARTIN REGALIA: Exactly. We’ve got to grow at better than 3 percent in order to create jobs. And we lost about 2 million jobs during the recession and the slower periods just before and just after, and the last couple of months we’ve only been growing at about 23,000 jobs a month, and that’s a pitiful slow rate.
TERENCE SMITH: Christine Owens, from labor’s point of view, how is the economy treating the American worker?
CHRISTINE OWENS: Well, I think Marty sort of hit on something when he said the fundamentals. At least from the standpoint of workers, the fundamentals couldn’t be much worse.
Unemployment is high. There are about 10 million workers who want jobs, who need jobs, and can’t get jobs; a million and a half workers have been unemployed for at least six months; about ½ million workers have completely run out of their unemployment insurance benefits.
Forty million Americans don’t have health insurance, and 80 percent of those are workers. Many more workers fear losing their health insurance either because they’ll lose their jobs or because health insurance costs are just skyrocketing, and many employers are passing those costs on to workers, workers just can’t afford to absorb those costs.
And finally, workers are extremely worried about their pensions and their retirement security. I mean, obviously the corporate scandals have heightened those concerns and have exacerbated some of the problems, but there has been a long-term trend away from guaranteed pensions to 401K’s, which workers have to invest in primarily and which are very risky in the wake of Enron and WorldCom and similar cases, many workers have lost all of their retirement earnings, eight hundred thousand, a million dollars; these are folks who are ready to retire, and all of a sudden everything is gone.
And all of us who have 401K’s have lost something over the last couple of years. Over the last couple of years the average balance in 401K plans has declined by 20 percent, so that’s a huge hit for anybody but especially for anybody who’s close to retirement, it’s just an enormous blow.
TERENCE SMITH: Martin Regalia, that’s a long laundry list of serious problems.
MARTIN REGALIA: Well, I really think when you look at our economy right now, there are problems certainly in the labor markets. The unemployment rate peaked at about 6 percent; it’s still at 5.9; that is a problem. You have to put it in perspective, though. 6 percent is the lowest peak in unemployment for a recession that we’ve ever seen.
So you kind of have to put everything in perspective. There’s about 180 million workers that do get health insurance from their employers. The 40 that don’t is a problem; we’ve got to address that, but don’t lose sight of the fact that the businesses provide health coverage to 180 million workers.
So, you know, it’s always a glass half empty, glass half full, and right now I think that the best thing that we could do for American workers is to get them all employed, to get them back to work, to get the people – the million and a half that have been unemployed for six months or more – back to work, and in order to do that, we’ve got to get the economy moving.
TERENCE SMITH: Christine, what’s your view of the Bush economic package, as laid out so far, the tax cuts, and the other principle elements, as it impacts on workers?
CHRISTINE OWENS: Well, the package that the president has talked about most recently, which is a series of tax cuts that would largely cut tax on corporate, on capital gains, reduce some of the taxation with respect to some dividends, expand 401k investments, by and large is not going to have much impact on workers.
Those tax cuts, by and large, benefit disproportionately the top one percent of wage earners. Average workers aren’t going to see much benefit; very few average workers actually are able to invest as much as the limits on 401K’s and IRA’s right now, and so extending those limits isn’t going to help them; very few have capital gains that they could actually benefit from a capital gains tax cut. So that’s not going to help them.
What will work, what will help workers are steps that really are designed to help them. One is providing jobs, making sure that we get job growth back on target. You know, it was just a couple of years ago we had 3.9 percent unemployment.
That was practically a full employment economy. Another is to provide a real prescription drug benefit under Medicare, and to take steps that will rein in some of the spiraling health care costs, and particularly the prescription drug costs. A third is real pension reform that does something to guarantee pensions for workers, to guarantee protections for workers in 401K plans – and to give workers a voice in the decision making about their pension plans and how they’re managed.
Another is to raise the minimum wage, another is to put workers first in line when it comes to bankruptcy. When their companies go belly up, they’re at the bottom of the line when it comes to getting back wages and severance pay. They need to be brought up to the front of the line.
These are all the kinds of steps that will help workers, and they’ll help workers who in turn are going to invest in the economy. Martin’s right, what saved the economy over the last several months is that consumers are still spending.
So we need to give folks more. The people that have to spend, more that they can spend, and that will be an important step in making the economy work for working families.
TERENCE SMITH: When you stand back and look at these numbers and you look at the Bush economic package as an economist, is it working?
MARTIN REGALIA: I think so. When you look at the data that we’ve seen recently, the GDP figures, for instance, and we look at what was happening before Bush’s first tax cut last year and before the tax cut earlier this year, what do we see? We see an economy that was declining actually from the Clinton administration; it was in decline before Bush even took the oath of office. And what happened? He got a tax cut through, we increased disposable income. Spending in the fourth quarter grew rapidly; and GDP grew.
The first quarter we had the first phase-in of the last year’s tax cuts; again, more spending. Consumers, when they have money, when we increase their disposable income, they spend it. The tax cuts earlier this year that decreased bonus depreciation, and what did we get the second quarter of the year, we grew at about 3.1 percent in investment and equipment and software, computers and the like; that was the first increase, a quarterly increase in six quarters, in a year and a half.
So the tax cuts and the economic plan that was put in work. But now we have to go the next step and I think when you look back at the tax cuts and you look back and evaluate them, you say, well, why don’t we do it again? I agree. We ought to do tax cuts that do two things. One, give people more money.
If we accelerated and made permanent the tax cuts that were passed a year ago, that would put more money in people’s hands, and they would spend it. And then we’ve also got to encourage businesses, because this has been an enormous period of uncertainly.
We’ve got to encourage businesses to take risks; that’s what they do. They take risks and they create jobs. And in order to take those risks, we have to encourage them in our tax code. We did that earlier this year; they responded. I think we should do it again.
We should also do things like passing terrorism insurance and passing an energy bill. These are two issues that both business and labor have worked together to get passed, because it would create more jobs and it would create more certainty and encourage investment and these are things that business and labor can do together to get the economy moving.
TERENCE SMITH: Let me ask you both what you think has been the impact so far of the corporate scandals on the economy, on the confidence of investors, on the confidence of people in the economy, Christine.
CHRISTINE OWENS: Well, it’s interesting. The Brookings Institute has actually just put out a study in which it tried to isolate the precise effect of corporate scandals on the economy.
Not everything else that’s going on and not what the impact of those scandals has been on the retirement savings of the employees of those companies, but rather isolate the effect on the economy itself, and they’ve concluded that the corporate scandals that we’ve had so far will cost the economy anywhere from twenty-eight to thirty-nine billion dollars this year alone.
Now what we are seeing in our Labor Day polling, which we’ve just released, is that these corporate scandals have had a tremendous effect on workers’ attitudes about business. Three out of five of the folks we’ve polled said that they don’t trust their CEO’s.
A couple of years ago the majority of respondents said they thought that businesses were out for workers and were out to do the right thing, and a fewer percentage had a negative view; well that’s completely flipped and people have a different view altogether.
And then finally we asked, do you think companies are falling short or meeting the goal of providing certain things to workers and two out of three folks said that companies were falling short of meeting a number of important goals for workers, most significantly providing benefits and job security and I think that’s a direct result of these corporate scandals, which has heightened everyone’s concern about the retirement security and whether they’re going to have a job.
TERENCE SMITH: Martin Regalia, what do you think in terms of its impact on the economy and whether it’s essential to get a change in mind set?
MARTIN REGALIA: Well, I think a couple of things: First, when you look at the corporate scandals, what occurred, occurred in the context of an economy that was softening and weakening. You look at something like the Wilshire 5000 Index, a broad measure of stock market value, it’s declined about 6.1 billion dollars. Okay.
Now all of that isn’t due to corporate scandals, but the corporate scandals did work to exacerbate that loss. I don’t know where you get something on the order of a 30 billion dollar number, I mean, that’s just a pipe dream.
But when you look at the corporate scandals in the context of the stock market loss, you could significantly interpret an impact on the stock market. I think we’ve addressed that. That was a very small piece of business that was involved in that. And it did cause a crisis in confidence, but I think it’s a crisis that we have addressed. There’s been a legislation passed that’s changing corporate governance.
The SEC has gotten new religion and also some new funds to go out and enforce it and they’re doing it aggressively, and this is the right thing to do and this is helping to restore confidence. We have to move forward because the real issue here is risk in business.
What business does is take risks; that’s what they’re there for. And as for taking that risk, they create jobs and they get a return. If we criminalize risk and risk taking and therefore retard the incentive to take risks, we’re going to get an economy that doesn’t grow and doesn’t create jobs and doesn’t pull itself out of the current problems.
And I think that would be a big mistake in the long run. So I would hate to see us criminalize and reduce the ability and the willingness for the business community to take those risks.
TERENCE SMITH: All right. We’re going to have to leave it there. Thank you both very much.
MARTIN REGALIA: Thank you.