Friday, April 25th 2014


Business: Chief Economist Talks State of the Union

January 27th, 2012 in Business by

William M. Rodgers III is a professor of Public Policy and Chief Economist at the Heldrich Center for Workforce Development at Rutgers University. He is a member of the graduate faculty of Rutgers’ School of Management and Labor Relations, and a senior research affiliate of the National Poverty Center at the University of Michigan. Rodgers served on President Obama’s Department of Labor Transition Team, and also served as chief economist at the U.S. Department of Labor from 2000-2001. Rodgers’ research examines issues in labor economics and the economics of social problems, with a particular emphasis on the effects on minority and disadvantaged workers.

The morning after President Obama’s 2012 State of the Union speech, I asked Prof. Rodgers five questions in an interview about the President’s economic policies and proposals for American business in what the President called his “Blueprint for An America Built to Last.” Rodgers says the President is moving in the right direction, but he reminds us of “countervailing issues,” warns us that the number of people benefiting from these proposals might be a “drop in the bucket,” and suggests how the non-profit sector can be leveraged to drive further prosperity.

1. The President wants to remove tax deductions for shipping jobs overseas and provide incentives for bringing jobs to the U.S. How effective would it be to alter the current taxation policy on businesses?

Rodgers: Is this a silver bullet? No. But I’m glad to see the President starting to address this. Since February 2010, when private-sector job creation started to return, over 90% of job creation has come from small to medium-sized firms. Meanwhile, there has been a slowdown in direct foreign investment particularly from Europe, and an increase in direct foreign investment from the U.S. to international markets. So job creation fueled by big, global companies has suffered. But even with tax incentives it’s not a trivial decision for a company to determine where it wants to relocate. So, it comes down to the size [of the tax break].

There is another countervailing issue. Some of the reason businesses are going abroad is that several international markets are where the growth is. In China and India, for example. Some of the foreign investment is going to countries with cheaper labor and less stringent environmental regulations, but a large part is about moving production to new and growing markets.

2. When it comes to unemployment, the President introduced a strategy to train two million Americans to help turn unemployment into reemployment. Why the focus on training?

Rodgers: What’s challenging about this period we are situated in is we have done so much deferred maintenance in terms of investment in people, in social capital. So that has helped create a skills gap to which the President was referring. We are not creating jobs like we were in the late ‘90s. So over time we’ve seen the emergence of a skills gap. Training is one arrow in the President’s quiver to target the underemployed. There’s a political motivation here as well. It will not be easy for the President to get unemployment insurance benefits extended again. That well is running dry. So the shift to job training is an effort to try to address the structural skills gap.

Yes, but is two million enough?

Rodgers: It’s a drop in the bucket. The pool of actively unemployed Americans is 13 million, and 43% of those have been unemployed for 27 weeks or more. So those people have moved from the cyclically unemployed to the structurally unemployed. That length of unemployment creates a skills gap that emerges over time. The training issue is even deeper when you consider we have 8.1 million people that work part-time and want to work full-time, and another 2.5 million that have stopped searching but would take a job if it were available. But they need to develop the skills required for today’s jobs. The new jobs opening up are demanding a new and different skill-set. It’s not just the technology or administrative skills we are used to. In the information persuasion economy we live in, your ability to smile, interact and communicate effectively are actually today’s hard skills, the tools of the trade.

3. So, what further can be done to give the unemployed and underemployed a chance at prosperity?

Rodgers: Well, the training effort probably has to be bigger. But beyond that I’ve written about a plan that would provide wage subsidies for social service non-profits. The economy could benefit from a program to place the unemployed and young college graduates, who have played by the rules and yet are having tremendous difficulty getting jobs. Bring them in to non-profits to work on projects—administrative, accounting, marketing. And by rebuilding the capacity of non-profits, which have been hit hard by the downturn in the economy and a lack of funding, they can then have the resources to impact communities by providing jobs. Also, on the boards of non-profits are people from the private sector. So by working at the non-profits the previously unemployed come into contact with these business people, and suddenly they are exposed to a network in the private sector for possible job opportunities in the future.

4. The President proposed tax credits for research and development in the U.S. Can this create jobs and also help bolster America’s status as a leader in innovation?

Rodgers: This is spot on. We as a nation are still the largest economy in the world, but we have lost our ability to act collectively. And innovation in my mind is done collectively. It’s a partnership between the public sector and the private sector. Throughout history there is always a catalyst for creating jobs. What is that catalyst, that new sector? What is the new cylinder added to the engine to generate new economic growth? The scale of our problem is quite large. So the proposed innovation incentives by themselves might be too small to generate the required growth. Still, I think the focus here as a means of sparking R&D and growth is spot on.

5. What about personal income tax policy? The President pushed Warren Buffet’s proposal to reduce tax cuts for the wealthiest Americans. Will this help rebalance our economy and reduce our swelling inequality?

Rodgers: This is about a tug of war over whether or not we want an ‘80s-style expansion, where the wealth pie is expanding but the government plays a small role in generating broad-based prosperity, or a 1990s-style expansion where we have policies investing in education and jobs programs to help create broad-based prosperity. If we go down the ‘80s path you have expansion, but you can create some down-stream costs. You have to be willing to accept higher poverty rates, less educational opportunities for children, and continued decay in urban areas. You have to be willing to accept a new digital divide, where those that live in the Mississippi Delta or the Appalachians would lag behind in access to the tools to allow commerce to flourish and expand. Yes, people have to demonstrate personal responsibility, but in 21st century global economies families have faced more and more challenges to finding prosperity. Many of the [financial failures] created during the recession have had huge ripple effects. The effect of Wall Street [failures] or auto industry [failures] rippled well beyond those industries and communities. As a result, we are out of economic balance. So, the administration is trying to help us find that better balance of personal responsibility and responsibility to the greater community.

To read Prof. Rodgers’ new paper Future Work 2.0. click http://bit.ly/yMDG4Z, and for more of his perspectives on the economy visit http://brodgers-laborecon.blogspot.com or follow him on Twitter: http://twitter.com/wmrodgersIII