Fall 2005, Volume 27, Number 1

Robert Reich

Globalization and technological change have widened the gap between rich and poor in income, wealth, and economic opportunity “on every rung of the economic ladder,” according to former labor secretary Robert Reich, who delivered IPR’s 2004-05 Distinguished Public Policy Lecture.

Reich told an audience of 175 academics, students, and members of the public that “America’s Real Jobs Problem,” should not be viewed merely as a cyclical pattern of job losses and gains that can be fixed by stimulating the economy. The problem has been caused by “the combined effects of globalization and technology, [which] have produced a labor force that is splitting between professionals and personal service workers,” he warned. “Professionals, overall, are doing well and will continue to do better. Personal service workers are doing worse and worse.”

Reich views globalization as a double-edged sword, enhancing “the value of people who add great value to the global economy,” but undermining the economic security and wages of less-educated workers whose relatively routine tasks can easily be done elsewhere.

Over the past 25 years, technological change has exacerbated these trends, forcing former working-class and lower middle-class workers into the lower wage, personal-service sector where there is less job security and fewer benefits. Jobs such as those in restaurants, hospitals, hotels, eldercare, childcare, and construction, for example, don’t compete globally and don’t compete with software, observed Reich.

Reich acknowledged that jobs are slowly coming back. But the recovery is extremely slow, he said, because American consumers are saddled with huge personal debt while they grapple with stagnant wages, soaring health care costs, and rising energy prices. All this has put the reins on their discretionary spending, which in turn discourages business from new investments in equipment, innovation, and production facilities.

What can be done about the jobs problem? Though outsourcing is a favorite scapegoat among politicians, Reich downplayed its impact. There will always be a set of “innovative, creative, insightful” jobs that will be in greater and greater demand, he maintained. Wages and benefits for the college-educated, adjusted for inflation, “are on an upward escalator—outsourcing or no outsourcing.”

Reich also branded Bush’s 2001 tax cut that went largely to the wealthy as “a terrible mistake…a very inefficient way to stimulate the economy.” Disputing the president’s premise that the rich will spend more, he argued that “wealthy people already spend as much as they want to spend.”

It would be far more efficient, he said, to put money directly into the pockets of people who are more likely to spend it. This might be accomplished, for example, by exempting the first $20,000 of income from the payroll tax for a year or two or raising the $88,000 ceiling on the portion of the payroll tax going to Social Security.

But the best long-term answer to the real jobs problem is investing in education, especially K through 12 and early childhood education, and providing better access to postsecondary training, Reich told his audience. Even a year’s technical training after high school could open more lucrative jobs to low-wage workers, especially as lab, office, or hospital technicians, he said. “There is a tremendous demand for people who can install, improve upon, and maintain all sorts of machinery. Those jobs would pay a lot and could create a new middle class. But we are not training people for these jobs.”

Reich found that Republicans are successfully tapping into what he termed “cultural populism,” appealing to workers who are targeting anger about their declining economic status to liberal East and West Coast elites. “They perceive these groups as culturally so different and so far removed from working people that they seem not to care about the working people of this country,” Reich observed. “It is a very potent, powerful political tool.”

Reich, who served as President Clinton’s Secretary of Labor from 1993 to 1997, said the Democrats must do a better job of responding to the crisis of America’s working class, especially in the heartland. He also advocated expanding the Earned Income Tax Credit and rolling back tax cuts for those earning more than $200,000. These funds could be used to provide affordable health care and serve as a down payment on the budget deficit, he said.

Robert Reich is University Professor and Maurice B. Hexter Professor of Social and Economic Policy at Brandeis University. He has written 10 books, including The Work of Nations, The Future of Success, Locked in the Cabinet, and most recently, Reason. He is co-founder and national editor of The American Prospect.

Click here to hear the audio recording or download the complete lecture.