Last month, President Clinton pointed to the February unemployment report as further evidence of the need for additional economic stimulus. More than 360,000 jobs may have been created, he said, but almost all of them were temporary or part-time positions.
Clinton's concern about jobs was less than convincing, given that his economic plan may turn out to be a net job-killer. The stimulus package, as Ross Perot aptly put it, will mainly create "one-time, taxpayer-financed bubble jobs." The rest of the package is loaded with measures that will undermine incentives to hire by increasing the costs of doing business.Clinton has proposed a new energy tax, a boost in the top corporate income tax rate to 36 percent, the elimination of a variety of business deductions, elimination of the cap on Medicare payroll taxes and, coming to a bottom line near you, a still-unspecified tax to finance a new health-care program.
The biggest problem is timing. Corporate America is in the midst of an astonishing efficiency drive. Labor productivity - output per hour worked - rose by 2.8 percent last year, the most impressive performance in two decades. Companies are more efficient and more competitive. Business, in other words, is trying to do more with fewer people.
The good news is that doing more with fewer people is the cure for 20 years of sluggish wage growth.
Some companies are becoming so efficient that competition from low-cost, Third World labor is no longer a threat. At Birmingham Steel Corp., to cite one example, the average pay is $55,000. That may sound high, but as The Wall Street Journal reported, the company is so productive its total labor costs are lower than what foreign competitors pay to transport their steel to the United States.
But good news for the long-term health of the economy is bad news in the short run for those seeking jobs. The productivity drive has gone well beyond downsizing, or payroll cuts by anemic companies. Healthy corporations, too, are cutting labor costs through workplace "re-engineering." They are hiring fewer workers and using more temporaries and part-timers.
The worst policy in such an environment is one that results in another round of taxes on business. What seems to have escaped the White House is that rising productivity is inherently disinflationary. Productivity-led growth puts downward pressure on prices; it boosts supply relative to demand.
From the point of view of suppliers, that means competition is more intense. Many businesses will be unable to raise prices to cover the costs of the Clinton tax burden. For these enterprises, the Clinton program is further pressure to cut costs by releasing workers.