Council on Foreign Relations

How to Invest in U.S. Employment

With the U.S. economy struggling and unemployment above 9 percent, President Barack Obama will outline new measures to create jobs and jumpstart the economy in a speech to Congress on September 8. Labor economist Gary Burtless says investment from both the private and public sectors is vital to generating employment. One way that the government can develop employment remedies, Burtless says, is by "increasing its budget for infrastructure investments, either through direct employment of workers, or, indirectly, by hiring private-sector companies with expanded public budgets."

What is the employment landscape in the United States?
 
Unemployment has a direct effect on the well being of Americans because it reduces the amount that we produce and, consequently, reduces our living standards. High rates of unemployment reduce the bargaining power of labor unions and of unorganized workers, and the consequence is that their wages increase more slowly than they would if the unemployment rate were considerably lower. Employees are getting a smaller share of the output produced by the nation's private firms than they were getting before the recession began. That reflects the weaker bargaining position of workers; it reflects the fact that employers don't have to give such big pay increases. They can ask their workers to pay for a larger proportion of the cost of the health benefits that they receive and a larger proportion of the costs of the pension benefits they receive.

How does unemployment affect U.S. economic leadership?
 
There's no doubt that the United States enjoyed robust growth during the 1990s and, indeed, had low unemployment rates. Especially by the end of the decade, that enhanced the prestige of the United States. The rest of the world could look with envy at the United States and think, "They have an administration and a Congress that are enacting sensible macro-economic policies; they have a central bank that seems to know what it is doing." People thought it easy to get a job; people were enjoying pay increases from one year to the next; the poverty rate in the United States was declining; and the living standards of middle class Americans were improving.

How does U.S. unemployment weigh on the global economy?

From the early 1980s onward, the United States exerted influence on the world economy because it was a big net importer. We were sort of the "consumer of last resort" for much of the world's economy, certainly for East Asia, but also to Europe and the developing world. In East Asia, the net exports that they sent to the United States helped these countries grow fast and maintain relatively low rates of unemployment.
 
When the United States becomes a less robust country, when the assets that the United States can sell to finance its trade deficits lose a little of their luster in the world, then [other countries] have to look elsewhere to boost their net exports. Given the growth model that many countries, especially in East Asia, followed for many years, a weaker American economy represents a challenge for those countries.

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