A Remarkable Job Machine

By John Greenwald

The creation of new employment in the U.S. has become the envy of the world

"They simply cannot get over it. They cannot understand why we can create all these jobs, and they cannot."

So said a top American policymaker after this month's London economic summit. He was still surprised by what he had been hearing. While many Americans correctly worry about their country's staggering budget deficit and balance-of-trade troubles, the Europeans and the Japanese are impressed by the record of the U.S. economy in creating new jobs. Says French Finance Minister Jacques Delors: "The dynamism of American researchers, workers and entrepreneurs is one of the reasons for their recovery." Since the recession struck bottom in November 1982, the U.S. has created jobs at a pace unmatched in post-World War II history. More than 6.3 million people have found work during the recovery, and unemployment has tumbled from 10.7% to 7.5%.

The American performance over the past decade is even more impressive. Despite woes that ranged from energy crises to runaway inflation, and regardless of whether Gerald Ford, Jimmy Carter or Ronald Reagan occupied the White House, the U.S. has managed to generate a total of 13 million new jobs, or a 14% increase. Western Europe, by contrast, has lost some 3 million jobs during the same period, while Japan, for all its competitive might, has added 5.6 million positions for a 9% gain.

Manfred Wegner, former chief economist of the European Community, calls it simply "the American miracle."

To be sure, joblessness remains a serious and painful U.S. blight. More than 8 million Americans are still out of work. Moreover, some critics charge that the American job surge, which has been highlighted by the creation of nearly 2 million new fast-food and other restaurant positions, is turning the U.S. into a nation of hamburger helpers at the expense of jobs in basic industries. But no one can begrudge the achievement. "By any measure," says John Bregger, chief employment analyst for the U.S. Bureau of Labor Statistics, "the growth we have had has been most dramatic."

While the U.S. is considered the land of Big Business, most of the new jobs have been created by fast-growing small and medium-size companies. The 100 most rapidly expanding U.S. firms last year, according to Inc. magazine, employed an average of 506 workers each, up 835% since 1979. By contrast, the members of FORTUNE magazine's roster of the 500 largest industrial firms have shed 2.2 million jobs, or more than 10% of their workers, during the same period.

The burgeoning new companies reflect the American genius for spotting business opportunities and starting new enterprises. Don Clifford, an executive with McKinsey & Co., the business consultants, has studied mid-size growth firms and concluded that the secret of their success is "an obsessed leader: the guy who eats, lives and breathes his company." Clifford found companies like these in virtually every industry and in every region of the U.S.

One such driven leader is Michael Blumenfeld, 37, president of BSN Corp. (1983 sales: $20 million), a Dallas mailorder sporting goods house. Seventeen years ago, Blumenfeld was laid off from his job as an industrial-guard supervisor. Noticing that tennis nets on public courts were often in tatters, the fledgling entrepreneur loaded 100 new nets into his Volkswagen van and set out on his first sales trip, returning a few weeks later with a $4,000 profit. Today, BSN markets more than 2,000 items, including golf clubs and tennis wear, and its payroll has blossomed from 21 workers to 250 in the past five years. Says Blumenfeld: "One of our biggest problems is holding on to secretaries and accountants, because they are needed all over town."

Other entrepreneurs thrive on challenges that can daunt larger firms. Few industries have shrunk more in recent years than American shoe manufacturing, which has seen imports walk off with much of its business. Yet the Timberland shoe company (1983 sales: $60 million), based in the rural hamlet of Newmarket, N.H., has weathered the foreign onslaught and added 900 workers over the past five years. "We benefited from the lack of imagination of some of the other old shoe companies around here," says Herman Swartz, president of the family-owned concern. Fully one-quarter of Timberland's sales have come from exports since its classic penny loafers became a hit in Europe.

Much of America's job growth is in the service sector. Workers performing every task from plumbing to neurosurgery have increased from 53% of the labor force in 1950 to 70% today. In the 1970s, the largest gain in total employment was made by secretaries, whose numbers rose by nearly 1 million. That was followed by a 556,000 increase in cashiers and the addition of 501,000 registered nurses.

Indeed, health care has been a major source of new jobs. The 63-year-old Cleveland Clinic has become one of that city's largest private employers. Surgeons at the hospital perform some 4,000 coronary bypasses a year, and a $500 million building program is under way to expand the 1,000-bed facility. The hospital's payroll has almost tripled during the past ten years, to 7,400 professional and hourly workers, including 2,000 residents of the largely black Hough district that surrounds the clinic.

Surprisingly, few new jobs are coming from high technology, which is often seen as the soul of the new U.S. economy. While advanced technical positions are growing fast, they still make up a small part of the total work force. For example, the number of computer systems analysts surged by 171% in the past decade, to lead all other occupations. Yet such highly educated professionals increased by only 127,000 during that period, or less than one-third the job gains recorded by cooks. In all, high-tech positions account for only about 13% of U.S. employment.

Such numbers can be deceiving, however, because high technology has an explosive impact on other occupations. Says Jerome Rosow, an Assistant Labor Secretary under President Nixon: "It generates jobs all around like a great catalyst." In Fort Worth, which is part of the so-called Silicon Prairie computer and electronics area of northeast Texas, high tech has added fewer than 10,000 positions since 1979, but it has helped to create service opportunities for another 92,000 workers.

Not everyone is thrilled, though, with the results of America's employment miracle. Critics charge that many of the new service jobs pay far less and require fewer skills than the blue-collar occupations that have been dwindling. The result, they say, is that the number of middle-class workers is steadily shrinking. Asserts Harvard Economist Richard Freeman: "For the first time in American economic history, the shift is toward lower-wage industries."

Many of the new positions do indeed depend on the willingness of workers to accept relatively low pay. America's wage bill has risen much more slowly than those of its major competitors. In the U.S., inflation-adjusted labor costs were up 8.9% during the 1970s, in contrast with leaps of 48.7% in Western Europe and more than 50% in Japan. When increases in U.S. manufacturing wages are excluded, U.S. labor costs actually fell 2.8%. Says British Economist Stephen Marris: "Americans have priced themselves into jobs by accepting lower real wages. Europeans have not."

The flexibility of American workers has helped spur employment gains in other ways. While French or German workers are usually reluctant to pick up and move to get a new job, Americans seem to be born under a wandering star. Four years ago, Bill Lehto, 27, moved to Fort Worth after losing his $7-an-hour job outside Detroit. Now working as a factory machine operator, Lehto earns an hourly wage of $7.90. "I like it here," he says. "Costs are much less, and on weekends we head out to hit the bass in the rivers and lakes. You get over your homesickness."

But despite the preponderance of lower-paying occupations among jobs that have been created, many skeptics overstate their case. Accountants, engineers, doctors, lawyers and other skilled individuals are all part of the service economy, along with such rapidly increasing support personnel as paralegal workers and teachers' aides. Indeed, some experts have concluded that any shrinkage in the size of the middle class in recent years has been caused by people moving up rather than down. Says Brookings Institution Economist Robert Lawrence: "Many income earners have managed to raise their wages so much that there has been a growth irt upper-class jobs."

Even such an oft-disparaged occupation as fast-food cashier has its advantages. The counters of inner-city Burger Kings and McDonald's are staffed largely by black teen-age women, who might have difficulty finding jobs elsewhere. The part-time nature of much of the employment also benefits working mothers. Says Mary Ellen Vaughn, manager of a St. Louis Jack in the Box: "The schedule here has been ideal for me because it is flexible." Nor must fast-food jobs invariably be dead ends. Massachusetts-based Dunkin' Donuts (1983 sales: $60 million) has a "Step Up to Excellence" promotion program that encourages workers to rise to managerial ranks that pay an average of $30,000 a year. And franchise operators, many of them Asian and Latin-American immigrants, can become millionaires. Says Dunkin' Donuts Chairman Robert Rosenberg: "Today we are the way into the middle class and the American dream."

Those who have suffered most from the trends in U.S. employment are laid-off steel-and autoworkers, some of whom had been making more than $20 an hour in wages and benefits. While total manufacturing jobs have grown by 1.5 million since the pit of the recession, about 500,000 employees have never found other positions. In St. Louis, where Ford's Hazelwood plant has added a second shift, overall automotive jobs are nonetheless expected to reach a plateau of about 20,000, one-third below the 1979 peak.

The plight of the once highly paid but now displaced workers has spawned an exceptionally varied response. Some critics maintain that the heavily unionized employees have simply priced themselves out of jobs. Says Marc Bendick, senior research associate at Washington's Urban Institute: "The supergood industrial jobs, which pay superwages for relatively low skills, will disappear because of competitive pressures." To others, the laid-off employees are national crisis. Says Chrysler Chairman Lee Iacocca: "To keep telling the people out of work in Pittsburgh or Detroit that they should become computer technicians or go into a service business is just a cruel hoax."

The problems of displaced workers have led to calls for political action to shore up sagging industries. Such measures include local-content legislation, which would require up to 90% of the parts of imported cars to be American-made, and industrial policies that would funnel federal money to depressed sectors. But most economists join the Reagan Administration in opposing those steps on the ground that they amount to life-support systems for jobs and companies that may no longer be viable.

Meanwhile, what Government help there is for dislocated workers has been largely ignored. Though Congress has appropriated $204 million for job training during the past two years, only $35 million has been spent. Most retraining, in fact, is provided by private companies for their own employees, making it even tougher for the unemployed to find work any time soon. In Detroit, community colleges have had great difficulty placing graduates of their two-year robotics programs because automakers have been giving short courses on that subject to senior factory hands.

Black teenagers, whose unemployment rate continues to hover at an intolerably high 40% to 50%, about triple that of their white counterparts, have gained little from the outpouring of jobs. To raise jobless youths' chances of finding work, the Administration has submitted a controversial bill creating a teen-age minimum wage of $2.50 an hour during summertime. The measure has been bitterly attacked by unions, who fear that it would undermine the current $3.35-an-hour rate. Says AFL-CIO Chief Economist Rudy Oswald: "We believe people should be paid for their work, not for their age or for their color."

In any case, far more than lower pay will be needed to create jobs for black teenagers. For example, though a recent tax credit cut the wage costs of firms that hire disadvantaged youths in the summer to just 50-c- an hour, few companies took advantage of it when it was introduced last year. "Employers just don't want those kids in their plants," says the Urban Institute's Bendick. Concurs a Government economist: "To attack the problem of black-youth unemployment as simply a job problem and only worry about the minimum wage is not the solution."

Many experts believe that the recent job trends will continue for the foreseeable future. Service-industry jobs should climb to 73% of the work force by 1995, vs. some 70% today. Major gainers are expected to be secretaries, cashiers, nurses and salesclerks, according to projections of the Bureau of Labor Statistics. Manufacturing employment's share, meanwhile, is likely to hold steady. The decline in basic industries should be offset by gains in such growing fields as medical and dental instruments, computers and communications gear.

Although the number of people in high-tech occupations will continue to grow, it will be dwarfed by jobs requiring little or no higher education. An additional 53,000 computer technicians will be needed by 1995, but business will be looking for 800,000 building custodians. Observed Stanford University Researchers Russell Rumberger and Henry Levin in a recent study: "Neither high-technology industries nor high-technology occupations will supply many new jobs during the next decade."

Overall, the U.S. is undergoing shifts in employment similar to those that have taken place regularly since the industrial revolution. When millions of jobs were lost on farms, new ones in industries such as steel and textiles grew up. The expansion of services and the shrinkage of some older occupations now are signs of the same natural growth and aging process. As long as American business can maintain its flexibility and innovative spirit, the number of Americans at work should continue to grow.

--By John Greenwald.

Reported by Gisela Bolte/Washington and Frederick Ungeheuer/New York

With reporting by Gisela Bolte/Washington and Frederick Ungeheuer/New York