COMMENTARY: THE BEST KIND OF AFFIRMATIVE ACTION
Who stands to gain the most from a strong economy? The poor. As labor markets tighten, employers are reaching out in new directions--to the unemployed and underemployed, immigrants, minorities, welfare recipients. ''People are going to work who would not have found a job. That's a wonderful testimony to our country,'' says Allen Sinai, chief global economist for Primark Decision Economics Inc.
Indeed, the type of strong growth seen in the past year is the best kind of affirmative action. Look at which groups have seen the most job growth in that time: Hispanics, black teenagers, female heads of household, and people aged 55 and older (table). The rising tide is beginning to lift all boats.
JUSTICE. Inflation hawks view this as a negative leading indicator. If labor markets can absorb these workers, many of them unskilled, surely the economy must be overheating. The hawks want to slow the economy, fearing that unemployment has fallen below its ''natural'' level and inflation is about to break out.
They're wrong. Slowing the economy in the name of avoiding inflation risks hurting the newly hired poor--needlessly. Thanks to advances in technology and globalization, ''we can see the unemployment rate remaining under 5% for a considerable period of time'' without igniting inflation, says economist Barry Bluestone of the University of Massachusetts at Boston. Some economists say the jobless rate could safely drop to 4.5%.
For reasons of economic justice alone, it's right to test the lower limits of unemployment. By raising incomes of the poor, a low jobless rate helps cure inequality. A 1993 study by economists Rebecca M. Blank of Northwestern University and David Card of Princeton University found that a 1% drop in the jobless rate--all other things being equal--would produce a 3.7% rise in annual earnings for the lowest fifth of the population; the top fifth would gain just 1.4%.
Similarly, Massachusetts Institute of Technology's Paul Osterman found the ''Massachusetts Miracle'' of sustained low unemployment caused a sharp drop in Boston's poverty rate from 1980 to 1989. And the longer people stay in jobs, the better: Federal Reserve Chairman Alan Greenspan and Vice-Chair Alice M. Rivlin argue that sustained low joblessness gives new workers the chance to develop the skills to get higher paying, more stable work.
But what of productivity? Conventional wisdom says that when the economy begins to employ marginal workers, productivity falls. Yet that hasn't happened this year: As the ranks of low-income workers swelled, labor productivity stayed robust.
Take Packard Bell NEC Inc. The PC maker hired 764 people off California's welfare rolls two years ago to help staff its new 4,000-worker assembly plant in Sacramento. Chief Operating Officer Roger A. Nordby spent $2 million on training for all of the new hires and their supervisors. Today, some 63% of the welfare hires are still with the company, and Nordby says the gamble has paid off in more productive, more loyal workers. Mila Hodzic, 45, was on welfare for nine months after immigrating as a Bosnian war refugee in 1994. She was promoted and is now a tester at $7.75 an hour. ''I am so happy,'' she says. ''This is my new life.''
Strong economic growth will be even more crucial as people are pushed off welfare. Four states that adopted welfare-to-work before the congressional mandate--Illinois, Michigan, Oregon, and Wisconsin--saw a huge increase in the labor force and a drop in unemployment. That shows welfare reform can work. But all bets are off if the economy slows. ''I see no way we can make that work without having a really strong labor market,'' says Northwestern's Blank. She's right. A message to inflation hawks: All we are saying is give growth a chance.
By Peter Coy
Updated June 15, 1997 by bwwebmaster
Copyright 1997, Bloomberg L.P.