Job Creation in the 21st Century

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May 5, 2004

Mr. DREIER. Mr. Speaker, I would like to talk about the best ways for the American people to deal with the changes that are taking place in our economy right here at home.

I have actually been talking a lot about change in recent weeks and taking a look at the profound and rapid change that has been taking place in this country over the past 20 years. I have spoken a great deal about the transformation of our economy and the fact that that change has had a tremendous impact in the high-tech area. It has created this change, a dynamic 21st century economy, an economy largely based on serving customers, business customers, Mr. Speaker, customers like you and me.

We have an economy that is based on skilled workers harnessing new technologies, finding new ways to increase efficiency, boost productivity and better serve customers. This is all taking place in a very fast-paced and very competitive environment.

New technologies and new business practices develop practically overnight. In this 21st century economy, about the only thing that remains constant is the fact that things are constantly changing. And they are changing for the better. Over the past 2 decades, in the United States of America we have created 40 million new jobs, largely in high-wage sectors. Over that 2-decade period, real wages have increased by 30 percent and productivity has more than tripled, while the size of our economy has doubled to what is a nearly $11 trillion economy today, nearly twice the size of any other economy on the face of the Earth.

And, it is important to note that students here in the United States are graduating from college in unprecedented numbers.

Now, there is no doubt about it: 2 decades of change have significantly improved the quality of life of average Americans. But there is also no denying the fact that change, even profound change for the better, does breed anxiety, and anxiety can cause people to seek stability rather than pursue greater change for the better.

This desire for stability is certainly understandable. It also has a long-standing history in our economy. While the past 20 years have witnessed a remarkable rate of change and growth, massive change has swept through our economy before. At the time of our Nation's birth, we had a largely agrarian economy. America then underwent a long transition to become the world's leading heavy industrial economy. And this shift that took place certainly did not happen overnight, the shift from an agrarian economy to a heavy industrial economy.

While there are no clear starting and stopping points, the transformation of our agrarian economy to an industrial economy took about 100 years, about a century. Through the increasingly widespread use of heavy machinery in factories, transportation modes and, of course, on the farm, we gradually witnessed what became known as the industrial revolution. Throughout this period, there was a great deal of anxiety about the changes that were taking place. Workers whose families had been farmers for generations were suddenly faced with having to find new kinds of work, new ways of supporting their families. This often meant finding a job and a line of work their fathers and grandfathers had never even heard of. A farmer in 1885 certainly never dreamed that one day his son would head off to work in Henry Ford's assembly line. He probably spent his time wondering and worrying about the existing kinds of work that would be available for his children; the existing kinds of work that would be available for his children.

Again, we can all understand this anxiety in the face of fundamental change. Predicting the future is not easy. If it were, I and I am sure all the rest of us, Mr. Speaker, would have invested in Microsoft and Wal-Mart 2 decades ago. But now, with the benefit of a century of hindsight, we can clearly see that the industrial revolution was a good thing, that transition from an agrarian economy to a heavy industrial economy was, in fact, a good thing. The middle class exploded. Our standard of living increased rapidly. Life expectancies climbed as workplaces became safer and grueling manual labor was no longer commonplace. Transportation became faster and safer. Communications also became easier and quicker. More and more Americans had access to quality education.

The benefits of this massive transformation in our economy are so apparent, it seems absolutely absurd to ask the question if we are better off because of that transition from an agrarian economy to a heavy industrial economy. Who here today would go back to the lifestyle of the 1830s? Obviously, no one. The more interesting and more telling question is why did the loss of millions of agricultural jobs not bring about the collapse of the American economy? In the face of profound change, how was our economy able to change for the better?

The answer simple: our flexible and dynamic system created new and better jobs. Let me say that again, Mr. Speaker. It is a very simple response about this change from the agrarian to the heavy industrial economy. Our flexible and dynamic system, very inextricably tied to this free market process, created, yes, new and better jobs. Innovation led to new opportunities. Rather than viewing new technologies as job destroyers, hard-working Americans knew that these achievements in heavy machinery could be powerful job creators. They harnessed these new technologies and transformed our entire economy.

Because Americans had the freedom and flexibility to innovate, we did not stagnate and decline. We adapted and we grew. We call that progress.

Today, we are well into our second economic transformation from that heavy industrial economy to our 21st century, business-serving-customers economy. This time, the transformation is taking place far more quickly. Even during periods of very strong growth in job creation, the churning that takes place within our economy is rapid and very far-reaching.

For example, back in 1999, just 5 years ago, our economy was booming. It was a boom year for the U.S. economy, 1999. Growth was quite strong with a 4.5 percent GDP growth number, and unemployment was very low at 4.3 percent. Yet, Mr. Speaker, over the course of that year, we witnessed the destruction of 33 million jobs. Let me say that again. In 1999, we had 4.5 percent GDP growth. We had an unemployment rate of 4.3 percent. Yet, that year, we witnessed the destruction of 33 million American jobs. But, at the same time, 36 million new jobs were created.

Now, over that period, nearly 100,000 jobs were lost every day, but our dynamic, bold, strong, innovative, creative economy created even more jobs than those 100,000 that were lost every single day. And the result, of course, was a net increase of 3 million jobs.

Now let us look at a period of slower economic growth, just 2 years ago, in 2002. At that time, the economy was just beginning to emerge from economic recession. GDP growth chugged along at a 2.2 percent growth rate. Unemployment was right around 5.8 percent, and over the course of that year, 32 million jobs were lost, while 31.7 million new jobs were created. Now, of course, the net effect of that was a loss, a net loss of 300,000 jobs. Remember, slow growth, emerging from recession, 2.2 percent GDP growth, an unemployment rate of 5.8 percent and, yet, we saw 32 million jobs lost, 31.7 million jobs created.

Now, this dynamism is often overlooked when we talk about our economy. In 1999, Mr. Speaker, news reports and economic commentary did not tell the story of 33 million jobs that were destroyed in this country. What we heard about was the net gain of 3 million jobs.

In 2002, we did not hear about the creation of nearly 32 million jobs. What we heard about was the loss of 300,000 jobs. The net gain is, of course, the number that we are all interested in. We want to see exactly how many net jobs are created, and we all want that number to be just as big as possible. But I am highlighting the millions of jobs lost and the millions of jobs created because they are the two sides of the equation that ultimately determines net job creation.

In other words, there are two ways we could attempt to achieve job growth. We could either try to stop millions of jobs from being phased out, or we could, Mr. Speaker, focus on creating even more new jobs, many of which are obviously in new technologies, just as was the case back when that farmer never conceived of the fact that his or her son would one day work in Henry Ford's factory.

So as I say, we could either try to stop millions of jobs from being phased out, or we could focus on creating even more jobs.

I also highlight these numbers behind the numbers because they reveal something that is very interesting. In 2002, a year of relatively slow economic growth, as I said, about 2.2 percent GDP growth, fewer jobs were actually reported lost than in 1999, that year of booming job growth. Now, this is key. These numbers say we lost 33 million jobs in 1999, and only 32 million jobs in 2002. Thirty-three million jobs when we had very bold, 4.5 percent GDP growth, an unemployment rate of 4.3 percent, and 32 million jobs were lost when we saw very, very slow economic growth of 2.2 percent and an unemployment rate of 5.8 percent.

The fact that more jobs could be destroyed during the boom is hugely significant. This tells us that our job growth equation, with job losses on one side and job creation on the other side, the number we should be focusing on is the job creation number. Yet, many of my colleagues have proposed just the opposite as a public policy for us. The opposite are these proposals designed to simply prevent any jobs from being lost.

Now, there are several proposals making their way through the Congress and in State legislatures and, unfortunately, those proposals, Mr. Speaker, ignore the job creation numbers. They ignore the fact that 2002, a year of relatively slow economic growth, actually saw fewer jobs lost, fewer job losses than 1999, that boom year. And they seek to somehow spur job growth by keeping the job loss number from growing.

Now, the presumptive democratic nominee, JOHN KERRY, has proposed raising taxes on companies that invest globally as a way to preserve jobs here at home.

CHRIS DODD, the senior Senator from Connecticut, has a proposal which was adopted by the other body in the form of an amendment to the corporate tax reform bill. That amendment was designed to prevent globally-engaged companies from competing for Federal contracts, and we have this discussed in State legislatures for States.

My colleague, the gentlewoman from California (Ms. Waters) has the same proposal here: preventing globally-engaged companies from competing for Federal contracts.

The Senate minority leader, TOM DASCHLE, has his Jobs For Americans Act, which is cosponsored by Senator Kennedy. This legislation would impose new restrictions and regulations on any company, large or small, that invests in growing overseas markets. Each one of these proposals, intended to increase the number of jobs for Americans, attempts to control the job loss side of the jobs growth equation. But would they be effective? Can we boost job growth by trying to simply focus our attention on preserving existing jobs?

Well, again, the numbers from the past several years demonstrate that we cannot. But rather than attempting to make an educated guess based on the data we have, I have a better idea, Mr. Speaker. We should use empirical evidence. I think what we should do is draw our wisdom from the example put forth by our friends in Europe; specifically, the French. The people of France thought up job preservation proposals long before they ever occurred to any of the economic isolationists we deal with here in both Houses of Congress.

France, along with a number of other European Union countries, has been imposing these very kinds of restrictions for years. We do not have to predict if jobs will be created if we prohibit U.S. companies from freely competing on a worldwide basis. We can simply look at the French model and ask ourselves, is job growth strong? Is the capital creation that leads to job growth thriving? Do we want our economy to look like the French economy?

Well, the answer is a resounding no. We know that the French have twice the unemployment and half the job growth, the GDP growth that we enjoy in the United States. Like the proposal that our colleague, Senator Daschle has in his Jobs For Americans Act, France imposes strict requirements on all businesses that intend to lay off workers. These restrictions have been in place for many years. For instance, a French employer must notify any worker of an impending layoff, in writing.

The notification period varies from case to case, but the minimum is 6 weeks. And in some cases, employers must give their workers up to 9 months before laying them off. This notification is followed up by a hearing in which both the employer and employee can state their cases. In the event that the employer does lay off a worker, he is required to provide a substantial severance package. In an effort to stem the exodus of businesses from their high tax, high regulations system, France began imposing, actually this is inconceivable, an exit tax. They began this back in 1998, an exit tax. The European Union recently struck down this provision, but for 6 years the French have used this highly burdensome tax on businesses to prevent them from moving to countries with less restrictive government regulations.

So with all of these ``job security'' measures in place, that are intended, very well intended, they are intended to prevent companies from laying off workers and moving offshore, you have to ask the question, are the French workers better off today? Has government regulation been able to save any jobs? Is new business creation, which would create new jobs, booming in France? The answer is an obvious no.

Since 1999 the unemployment rate in France has been stuck right at about 10 percent. While it dipped as low as 9.1 percent in the end of 2002, it is now back up to 9.5 percent. And it continues to rise at a time when the overall unemployment rate for OECD countries is falling. This decrease, I might add, is being led by falling employment right here in the United States of America.

Furthermore, France's economy overall is fairing quite poorly. Last year the GDP growth rate in France was 1.8 percent; and estimates for this year are at 1.7 percent. Its finance ministry recently announced that it is hopeful that the economy could grow by as much as 2.5 percent next year. But even they admitted that this relatively slow rate of growth will be very difficult to achieve.

I think it is important to note that this stagnation is not a recent or temporary situation in France. The French are not simply going through a few difficult years as all countries do from time to time and as ours clearly has. Average annual growth and GDP throughout all of the 1990s in France was 1.9 percent. Just over half the average GDP growth rate of 3.4 percent that we have had here in the United States, but maybe France is just an anomaly, Mr. Speaker.

France, their restrictive job security laws would have a different effect in a different economy. So let us look at another case. Germany. Germany has many labor regulations that are similar to France's. And like their neighbor to the west, these laws have been in place for many years. The Protection Against Dismissal Act, which could have been the model for Senator Daschle's Jobs for Americans Act, was adopted a half century ago just after World War II. This statute requires every employer to justify the laying off of any employee taken into account, taking into account social justice factors.

Now, these factors include things like whether the employee is a single mother or elderly or disabled. Employers must give workers notice of layoffs between 1 and 7 months in advance, depending on how long a worker has been with a company. Employees can challenge any layoff in court and obtain preliminary injunction allowing them to remain on the job until their cases are decided. Preliminary injunctions can keep people on a job while their case is being decided, whether or not it is a good business decision for that operation.

These are very stringent requirements imposed on German companies, no doubt in an effort, well-intentioned, the effort, of course, to protect German workers. But are these workers better off, Mr. Speaker? Since the late 1990s, unemployment in Germany has hovered above the 8 percent level and has steadily climbed over the past year. In 2003, it inched up from 9 percent to 9.2 percent and continues to climb.

At the same time the GDP growth rate in Germany has, as has been the case in France, been a paltry 1.7 percent for the last 2 years.

Mr. Speaker, economic forecasters have recently downgraded their growth predictions for Germany from 1.8 percent to 1.6 percent, even lower than that anticipated in France. Just like France, economic stagnation has been a part of the German way of life for many years. Throughout the 1990s, economic growth averaged just 1.5 percent, an abysmal one-third of the economic growth rate that we have seen on average here in the United States economy. The long term numbers clearly do not stack up well against the United States. But let us compare the short-term numbers, Mr. Speaker.

French and German unemployment is at 9.5 and 9.2 percent, respectively, and those numbers are increasing. In the U.S., unemployment is at 5.7 percent. That is roughly half the levels of unemployment for both France and Germany. The same goes for economic growth. While the French and German economies have been inching along at less than 2 percent, GDP growth, the U.S. economy has been racing forward at a 4.1 percent annual growth rate, more than twice the growth rate of both France and Germany. And in the third quarter of 2003, the U.S. economy grew at a staggering 8.2 percent, our fastest growth rate in 20 years.

But perhaps the most telling numbers of all are what I will call innovation indicators. In terms of new patents, research and development, venture capital, the U.S. far outpaces France, Germany and the entire European Union. For example, the United States leads the world with 185,000 new patents granted every single year. This is almost four times the amount for the entire European Union.

In 2002, France granted fewer than 4,000 patents and Germany only granted 11,000 patents. In other words, U.S. innovators are producing 50 times the work of their French counterparts and 17 times the work of their German counterparts. A look at research and development shows a similar picture.

Last year, the United States spent almost $300 billion on research and development. That is nearly a third of a trillion dollars on research and development, including both public and private sources. This year we will spend $320 billion, an increase that stems in large part from the President's commitment to increase Federal research and development funding. In fact, the President's proposed R&D budget of $132 billion marks a 42 percent increase since he took office.

France, by contrast, spends only $30 billion a year, a tenth of what the United States spends. Germany devotes $37 billion a year to R&D which is less than one-sixth of the U.S. total. Once again, the United States of America is the global leader while France and Germany trail far behind.

Another important innovation indicator is venture capital. Business and individual investors provided over $21 billion in venture capital in 2002 right here in the United States. That compares with less than $2 billion in France and about a billion dollars in Germany. In both cases, a tiny fraction of the venture capital investment that we have here in the United States. In fact, the amount of venture capital raised each year in all of western Europe barely equals a third of the amount raised here in the United States.

Mr. Speaker, each one of these innovation indicators which demonstrate the vitality and dynamism of an economy together with factors like unemployment and growth and gross domestic product, clearly shows that our economy is creating far more and far better opportunities for workers than any place else. It seems that the ``job security restrictions'' might not be quite the boon to workers that their proponents would have us believe. Europe's failed attempts to artificially retain existing jobs have guaranteed economic stagnation, not future prosperity for their workers.

The French and German models demonstrate that job growth cannot be achieved simply by trying to prevent any jobs from being phased out. Instead, we need to focus on the other side of that jobs equation that I have discussed earlier. The job creation side.

In light of our economic history, this should come as absolutely no surprise whatsoever. Our Nation's economic strength has always been based on the ability of industry, workers, and consumers to innovate, adapt and create new and better opportunities. As we saw with the shift from an agrarian economy to an industrial economy, success did not stem from our ability to prevent the loss of agricultural jobs. Our success was a result of our ability to harness new technologies and create entirely new fields of work. And we transformed our economy into a global leader in the process.

Today it is just as critical as ever that we reject the path of stagnation and choose the path of progress instead. The path that encourages companies to innovate, raise productivity, compete abroad, and create the new kind of jobs that reflect our uniquely American ability to adapt to the changes of the future. This is the American model for job growth.

But if this has been our formula for success and global economic leadership for nearly 200 years, why are our current job growth numbers not as strong as we would like? After all, our economy has been out of recession for over 2 years. In fact, growth is clipping along at a brisk 4.1 percent. The stock market is performing well, real wages are growing, consumer confidence and spending remain high, and home ownership is at record levels. All indicators point to 2004 looking a lot more like the boom of 1999 than the relatively slow growth that we saw in 2002.

Yet, while the job growth numbers have recently grown much stronger, the overall job creation picture still looks a little weaker than expected. Now, Mr. Speaker, I believe that there are three reasons why the job creation numbers have not yet matched the exuberance of the rest of the economy. First, we quite simply are not counting all of the new jobs. Our jobs statistics, the number of new jobs that comes out on the first Friday of every month are derived from the payroll survey known as the Establishment Survey. The data are collected by asking a sampling of businesses how many people they employ and if they are adding or reducing jobs.

The problem is that the payroll survey only looks at the established businesses. That is why they call it the Establishment Survey. There is no means for counting the self-employed, the independent contractors, the enough business start-ups. These entrepreneurs are completely left out by our job creation number. But we do know that they are out there. And we know that the number is growing.

Significant anecdotal evidence from established businesses shows that companies are increasingly relying on more fluid business models. Independent contracting gives both businesses and skilled workers greater flexibility in coordinating projects and meeting their individual needs. While the payroll survey misses these types of workers, they do get counted in the household survey. The Department of Labor's household survey goes directly to individuals and asks them if they have a job and what kind of work they are doing.

Now, Mr. Speaker, because the household survey looks at the entire workforce and the payroll survey only looks at a certain kind of employment, it is no surprise at all that the household survey shows a net gain of over 1.5 million jobs since the end of the recession in November of 2001. Over the same period, the payroll survey shows a net loss of about 350,000 jobs. While even the payroll survey has not recently begun indicating robust job growth, 308,000 new jobs in the month of March and 204,000 new jobs in the previous 2 months, the two surveys still show a discrepancy of almost two million jobs since the end of the recession.

Furthermore, trends in job creation indicate that the payroll survey is increasingly inadequate for counting new jobs. The household survey shows that one-third of all new job creation is in self-employment. This means that the fastest-growing part of our workforce is missed entirely by the payroll or establishment survey. If we are going to have an accurate picture on job creation, we need jobs statistics that account for the kinds of jobs our 21st century economy is creating.

The second reason I believe job creation has not yet reached expectation is that our economy is in the process of creating entirely new types of jobs in entirely new types of fields.

In recent decades, job losses and gains have primarily been the product of the business cycle. Employers would be forced to lay off workers during tough economic times and would rehire them during the recovery. Because the job opportunities before and after a recovery looked very similar, reemployment happened very quickly.

Today, we still go through cyclical change, but we are also experiencing a great deal of structural change. As I discussed earlier, we are in the midst of a major economic transformation. In our 21st century economy, a new job is often new in every sense of the word, new work in a new field demanding completely new skills.

Rather than simply going back to their old jobs, workers are increasingly finding work in cutting-edge fields and learning very, very different skills. Part of our focus in the 21st century economy should be helping to match workers with employers so that reemployment can take place so that we can see reemployment take place just as quickly as possible. We need to help match workers with employers, workers who were laid off so that we can help them.

The third factor, Mr. Speaker, that I believe is affecting net job creation in this country, and the perception that we are experiencing a jobless recovery is the fact that there are very real barriers to job creation that still exist here in America. These include the rising cost of providing health care for workers, frivolous lawsuits, the cost of complying with ever-growing government regulations, and a Byzantine corporate Tax Code.

In fact, the National Association of Manufacturers estimates that these factors raise the cost of doing business in the United States by almost 25 percent, that is, these factors, the things that exist, the frivolous lawsuits, the regulations, the tax burden and the cost of health care, they have increased the cost of doing business by almost a quarter. That can be devastating to any company, particularly small- and medium-sized businesses, and it can significantly impede the ability of entrepreneurs to turn their innovations into new jobs for Americans.

These three factors, inadequate job statistics, the structural changes that are taking place in our economy and the barriers to job creation, are all impacting our jobs numbers; and each presents an opportunity for us, Mr. Speaker, as policy-makers.

Improving our data analysis, helping to match workers with new jobs and training for new skills, seeking reforms that will lower the cost of doing business in the United States from tort reform to health savings accounts, these are a number of initiatives that the Congress of the United States can pursue to boost job creation in this country. The most important part is that we keep our focus on the job creation side of the equation.

It is true that, as in an earlier era of buggy whip makers and blacksmiths, some jobs are disappearing forever; but I reject the belief that we have reached the end of American innovation. Call centers in India are simply not a harbinger of stagnation and decline. To say that they are is defeatism in its most basic form.

Admittedly, I cannot stand here and tell my colleagues exactly what the jobs of tomorrow will be, just as a defeatist in 1850 could not have foreseen jobs in film production or software engineering. What I can tell my colleagues, Mr. Speaker, is that Americans have a long history of adapting and growing and being innovative and creative. If we allow workers to continue down that road towards innovation, we will continue to create lots of new opportunities for Americans.

Mr. Speaker, Senator Kerry and many on the other side of the aisle want us to pursue the French and German models; and we know from that experience that what we have seen from the French and the Germans does, in fact, create stagnation and stifling regulation and jeopardizes the ability for Americans to be innovative and creative.

Mr. Speaker, I will take the American way, with confidence in the American worker and the American employer for the future.