VOLUME 30, NUMBER 1 HARVARD EXTENSION SCHOOL FALL 1996 ![]()
LOWELL LECTURE - MAY 10, 1996 Jobs, Education, & the Future of the American Labor Force by Robert Reich, US Secretary of Labor
Robert Reich, US Secretary of Labor and this year's Lowell Lecturer, joined former Harvard colleagues Friday evening, May 10, in Lowell Hall, as he talked about the role of education and the future of the American labor force in an increasingly competitive global market. John T. Dunlop, Lamont University Professor, Emeritus, and former Secretary of Labor, and John Kenneth Galbraith, Paul M. Warburg Professor of Economics, Emeritus, and former United States Ambassador to India, were among the Harvardians welcoming Secretary Reich back to the University. An edited transcript of the lecture and stimulating question-and-answer session follows. Let me begin by talking about the winds of change. I want to perhaps illustrate that point by describing the testimony I gave yesterday before the House Appropriations Committee, dealing with the 1997 budget of the Labor Department. Now, when I describe this Appropriation hearing to you, I want you to keep in mind that every year, as Secretary of Labor, I go up, duty-free, to the House of Representatives and to the Senate to make my case and the President's case for what we need, or we think we need, to do the job of the Labor Department. Former Labor Secretaries, like former Labor Secretary John Dunlop, who is sitting right here in the front row, have experienced the same process. But this year was notable in the sense that I made my case, Republicans asked me many questions, and the atmosphere was cordial. Now the reason this strikes me as interesting is that last year at this time, when I went up to the House Appropriations Committee and made my case for the 1996 budget, Republicans on that committee were perhaps, shall we say, less than cordial. One interchange I remember distinctly: One member of the committee leaned over and said, "Mr. Secretary, I have read your books." I said, "Well, thank you very much." He said, "I've also read Che Guevera and Karl Marx. And there is no difference between any one of you." Thinking he was being humorous, I said, "I am so delighted, Congressman, that you have read my books. My books are the kind of books that once you put them down, you can't pick them up." He did not smile. He said, "You are a Communist, are you not?" I said, "No, I'm not." Now at this point the ranking member of the Democratic party on the committee stood up, literally stood up from his chair, pointed at this particular member of the opposing party, and said, "There, you see. They're nuts. They're completely nuts." At that point the social fabric of the Appropriations Committee began to unravel. I sat there while the two sides yelled at each other, the ending of which was that the members of the two parties got up from their chairs and walked out. They did not want to speak with each other any longer. I simply sat at my little table, waiting to be excused, and finally someone remembered I was still there, and they came back and dismissed me. But civility is back. This was a cordial discussion yesterday, and I came back to the office perplexed and wondering what had happened; why there is now this degree of civility. I think I have some ideas and some answers. But I want to give you another anecdote, another data point. Two weeks ago I was called at midnight by the chairman of NYNEX Corporation, who said, "Tomorrow we are announcing that NYNEX is going to merge with Bell Atlantic, and I want to assure you"--now this was midnight, I was awakened from a deep sleep, I didn't quite understand what he was talking about until he finally said--"I want to assure you that we will not be laying anyone off. We will not cut any payrolls, there will not be any downsizing." And I said, "Well . . . thank you very much. Good night." The next day he made that announcement. But this was an announcement that was similar to one that many other companies have been making recently. In fact, Pacific Telesis, in its merger with SBC, also Aetna Life, with its merger with US Health, all of these merger announcements over the past four weeks have been accompanied by a statement from the chairman or the CEO to the effect that they would not be laying people off. Now this again I find very interesting. Because up through the beginning of January, major restructurings were announced with great flourish, and the key ingredient of the announcement was a statement directed to Wall Street that the merger or restructuring would be accompanied by a great layoff. AT&T proudly proclaimed, on January 4, that 40,000 people would lose their jobs. This was said with great gusto, with great celebration, in a sense that Wall Street would like it. And this was simply the last of many such announcements, the presumption being the deeper the cuts, the more people who lost their jobs, the better, because stock prices would go up. Wall Street would be happy. What has accounted for the change? Why, over the last three or four weeks, have there been five major restructuring announcements, all accompanied by a very different kind of message? Not that there will be cuts in jobs, but that no jobs will be lost. What accounts for this change? Does it have anything at all to do with the civility and the change in mood that I encountered yesterday at the House Appropriations Committee? I leave you with that question--I'll come back to it, and maybe I'll try to answer it. But let me just say a few things about where we stand with the economy and with politics right now, because over the last three months, the United States economy has not functioned very differently from the way it had before, but the way people talk about it has altered somewhat. The economy is doing quite well in several respects. Unemployment is down to 5.4 percent. Eight-and-a-half million new jobs have been created since January of 1993. The first quarter results for the growth of the gross domestic product showed an annualized rate of 2.8 percent. There is no inflation in sight, particularly what is called wage-pushed inflation. In all these dimensions, the economy is doing very well. In fact, the so-called "misery index," the combination of inflation and of unemployment, is down to the lowest level it has been in 28 years.
And yet, as I travel around America, something that I as Secretary of Labor do quite a lot, and talk to people in factories and offices and retail establishments on the front lines, asking them how they're doing, general questions, I detect as much anxiety, as much economic insecurity, as I did three years ago. Now truly, they are not as worried about having a job. Three-and-a-half years ago, we were experiencing what was called a jobless recovery. People were very concerned about jobs, the unemployment rate was over seven percent. But there is still a deep-seated worry. As I asked people at my free-floating focus groups to explain what they are worried about, given all the good economic news, they tell me it is usually a matter of wages, or they're worried about losing their jobs. They depend on two wage earners. If one wage earner loses a job, their family would be in trouble. They're worried about paying the bills. They're worried about their pensions. They're worried about sending their children to college. They're worried about health care. They're worried about a lot of things, all having to do with making ends meet. Not too long ago, I met a man who was working 80 hours a week--a man, 60 years old, working three minimum-wage jobs. And he told me that he doesn't have time for anything except for work. I've met people who have tried to stay off welfare: young mothers with children who say to me, "I don't want to be on welfare, I will not be on welfare," and yet they're having a very hard time making ends meet. I've met factory workers who feel in danger of losing their jobs. Not too long ago, I had a long discussion with a 54-year-old factory worker who knew his factory was downsizing, knew that 30 percent of the workforce would be gone by the end of the year, and was worried that he might be in this 30 percent. And if he wasn't, he was still concerned because he felt that there would be no cost of living wage increase for him. In fact, if anything, his real wage would continue to decline. There is widespread economic insecurity out there: Despite job growth, despite a healthy economy, a considerable number of people are worried about their futures. Presidential candidate Pat Buchanan came on the scene not long ago and exposed a great deal of fear and concern. The fear was there before he exposed it. Pat Buchanan is no longer a candidate for President, but the fear and anxiety that fueled his candidacy are still there, despite an economy that continues to grow. What is going on here? I think a lot of it has to do, fundamentally, with the structural change in our economy that is not new. It's been going on at least since the 1970s. The structural change has to do in part with the globalization of the economy--more and more of the economy is exposed to the winds of global competition--but it also has to do with technological change in the economy. The old system of stable, high-volume mass production, in which economies of scale were the primary vehicle through which profit was made, is being replaced by a very different economy, a very different structure. One might call it instead high volume, high value. High value becomes the key competitive weapon today. But this means that in order to maintain your standard of living, you've got to be able to utilize technology.
Technology is your friend if you have the capacity to use it; it may be your enemy if you do not. Technology may be taking your job away, making you redundant. Similarly with the global economy: Globalization is terrific for you if you have value to add to the global market so that you can export your services directly or indirectly. But if you don't, globalization may be your enemy, because there may be millions upon millions of people around the world who can do your job more cheaply. In short, because of both globalization and technological change, there has been a profound shift in demand in favor of people with education, with skills, against people without the right education and skills. You can see it in the data, you don't have to travel around the country talking to people as I do, as Labor Secretary. You can see that in 1979, the average college graduate in America was earning about 40 percent more than the average high school graduate. By 1994, the average college graduate was earning 80 percent more than the average high school graduate. If you do not have a high school diploma to begin with, you are falling off the charts in terms of wages and benefits. The employment index, which measures the actual cost to business of employing someone, is registering a very interesting pattern of late. It is not just median wages that are stagnating, it is also benefits. Health benefits are actually falling below the level of inflation for the first time in years. When people talk about average wages going up in this economy, watch your wallets. In fact, whenever people talk about averages in this new tumultuous, dynamic economy, watch your wallets. Averages are sometimes misleading. Basketball star Shaquille O'Neil and I have an average height of six foot two. You see, averages don't tell you very much about what's happening to the little guy. Indeed, what has been happening in the American economy, at least since the late 1970s, is a widening dispersion of income. Education and job skills are part of the reason. The premium placed on education and job skills is a large part of the reason, but not the entire reason. In my judgment, probably about 50 percent of the explanation for the widening divergence has to do with education and access to job skills. What about the other 50 percent? How do you explain that? There are structural changes that explain the other 50 percent. For example, the decline of unions and the proportion of the work force that is unionized explains some of the dispersion that we are seeing. Blue collar workers without skills have less bargaining leverage than they had 10 or 20 or 30 years ago. The decline of the minimum wage, now heading for a 40-year low in terms of its real value, certainly affects especially women workers near the bottom of the wage scale. Sixty percent of wage earners are women. There is one additional factor: The implicit social compact that used to exist between company and employee is simply no longer there. In the 1950s and 1960s, that implicit social compact stood for a very simple proposition. If the company is making more money and showing healthy profits, then employees would do better as well. Their wages would go up, their benefits would go up, they would have a reasonable degree of job security, as long as they were reliable. That is no longer the case. We have seen, particularly over the last ten years, companies doing better and better, profits going up, and yet individual workers not sharing in these gains. Median wages are not rising; they are sometimes falling, sometimes among a proliferation of pink slips. Companies have become better and better at paying people only the marginal value they add to the enterprise. This is not a matter of venality; it is not a matter of demonizing companies. To some extent, the market is demanding it. Electronic capitalism is ensuring that investment dollars go to those particular places in the world where there is the highest return for a given level of risk. Companies are becoming ever more sensitive to this, and hence the old gentlemanly days of investment are gone. Chief executive officers tell me repeatedly that they have no choice. Do they have any choice? What about the example that I gave you ten minutes ago? Why is it that, over the last three months, the climate seems to be changing? What was the chairman of NYNEX getting at when he said to me, "There will be no layoffs"? If, in fact, payrolls constitute about 70 percent of business costs, and if one primary strategy of reducing the cost of a business and responding to these market forces is to lay people off or reduce wages, why did the chairman of NYNEX call me at midnight to tell me that there would be no layoffs? And why are all these other companies changing their tunes as well? I believe that the business community, and perhaps also some of the Republicans on the House Appropriations Committee, are responding not just to economics but also to the political consequences of economics that Pat Buchanan revealed. You see, if a substantial minority of Americans does not feel that economic dynamism and change is working to their advantage, if they feel that they are not the beneficiaries of the upside gains of economic growth, but rather that they are burdened disproportionately with the risks and insecurity associated with economic growth, they will vote, they will participate, in a democratic sense, they will vote for policies which will, in fact, stunt growth: protectionism, controls over capital markets, and labor inflexibility in terms of labor markets. There is not, in this sense, a totally free market alternative in a democracy. If people feel that the cards are stacked against them, they will change the deck. And indeed, business executives, and also some Republicans who have been very adverse to providing education and job skills and investments in the work force of the future, are perhaps beginning to change their tune. Last week, the Committee on Economic Development published a very interesting report on the American economy, with a set of recommendations on how to deal with growing inequality. Their recommendations paralleled recommendations that emerged from the National Association of Manufacturers a week before. The reports made the same set of recommendations.
Number one, we have to, as a society, invest far more in education and job skills. Number two, businesses have to invest far more in upgrading the skills of their employees. And number three, if businesses must downsize, they must downsize in a way that helps their employees in the transition to their next job, that eases the transition, eases the pain, provides job search assistance, job counseling, and training where necessary. Why are the Committee on Economic Development and the National Association of Manufacturers saying this? I think for the same reason that the winds seem to be changing in these other areas. Perhaps an acknowledgement that unless we have a political economy in which most people are brought along with prosperity, there is a price to pay. Am I optimistic about the future, having been in Washington for almost four years as Secretary of Labor watching this drama? Do I think that the winds of change are permanently pushing in a different direction? No. I think this is a temporary phenomenon. Am I optimistic about the long term? It depends on the day you ask me. On Fridays, I tend to be quite optimistic. I'm optimistic in the following sense: We in this country, when we understand the nature of a problem, we, like no other civilization, tend to roll up our sleeves and get on with what has to be done. When we understand that rising levels of inequality threaten the social fabric of this economy, business executives, labor leaders, Republicans, Democrats, people of all philosophical persuasions, get together and figure out what needs to be done. But on Tuesdays and Thursdays and Saturdays, I worry a bit. The nature of the worry has to do with the parable of the frog in the pot of water. If you drop a frog into a pan of boiling water, the frog leaps out. It leaps out because the frog knows the water is boiling and it must leap, it must change. There is a little electronic circuitry, even in that primitive nervous system, that says, "Move." But if you go back to that pot of water when it is lukewarm and drop the frog in, turn up the heat very slowly, and gradually bring it to a boil. . . . What I'm getting at is this: On my pessimistic days, I worry that the changes we are experiencing, in terms of the distribution of income and all that goes with it, are happening more slowly than is our capacity to recognize the urgency of the situation that is being created. And, therefore, instead of leaping, as we must, we, as a political culture, are not taking the actions we need to take. Now I can say, as Labor Secretary, I and the President have done everything we politically can do, getting appropriations for education and job training, not allowing them to be cut, expanding the earned income tax credit, which is a guaranteed eye-glazer but is also one of the most anti-poverty policies we have, fighting for an increase in the minimum wage, expanding health care protection, at least trying to, and pension portability and pension protection. But is that enough? How far will American politics, at the present juncture, allow us to go? Do we understand, even though the winds of change are prevailing right now, even though Republicans on the Appropriations Committee were even conciliatory toward me yesterday, even though we had chief executive officers making announcements about no lay-offs, we are gentle and kind here in the executive suite, are we prepared to make the kind of changes that are necessary to make sure the American dream is truly available to all Americans? Well, it is Friday, and I am very optimistic.
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