Lessons of Booming Late ‘90s Offer Promise for Labor Outlook

The outlook for jobs and income for American workers is probably better than it seems this Labor Day weekend.

Tepid job creation and growing unemployment threaten the current weak recovery. But lessons from the 1990s boom offer some reassurance about the economic patterns that will govern this decade.

The late ‘90s, a period now reviled for dot-com busts and CEO delinquencies, was a great period of growing prosperity for all American workers.

The combination of technological advances in U.S. business and full employment led to gains in family income that reversed 20 years of income stagnation. That’s the finding of “The State of Working America,” a 400-page study to be released this week by the Economic Policy Institute, a labor-backed Washington think tank.

Productivity increases led to rising living standards, says the institute, which doesn’t often praise corporate efficiencies. A companion study, “The State of Working California,” notes a rise in low-wage jobs amid unprecedented growth of employment and income during the boom in this state.

The studies, undertaken every two years and timed for release on the Labor Day weekend, are authoritative on the strengths and weaknesses of the U.S. economy and labor picture.

But in their praise this year of the productivity-and employment-rich late ‘90s, they raise the question of how success was achieved and whether it can and will be repeated in this decade. The evidence is encouraging, despite flaws in the economy that need to be corrected.

The labor outlook for the next few years is promising. “There will be a shortage of young people entering the labor force,” notes economist Daniel J.B. Mitchell of UCLA, and that could prompt a return of the labor shortages of the late ‘90s, when construction firms, restaurants and all sorts of businesses--not just high-tech companies--competed for workers.

More than any other factor, that full employment environment led to the rise in U.S. median family income, to more than $52,000 a year in 2000, from levels in the mid-$40,000s, where incomes had stalled since 1973.

Wage growth was evident particularly among “middle-and lower-income families, whose economic fortunes had stagnated in prior years,” says the Economic Policy Institute study.

There is no labor shortage at the moment. On the contrary, unemployment is rising and the U.S. labor force of more than 140 million grew by only 6,000 jobs in July. But as the economy recovers next year and beyond, young workers will be needed and the numbers of new entrants to the job markets are far fewer than the 2 million-plus young baby boomers who hit the job markets every year in the 1970s. Trying to make work for them all prompted policies that led to high inflation and other economic problems.

The other big factor in the late ‘90s triumph was gains in productivity, the achievement of getting more output for the same input of labor or investment. Productivity increased 5% a year in the late ‘90s, which in the vast U.S. economy is equal to a bonus of $500 billion in economic activity-- enough to create 10 million jobs or improve pay for existing jobs.

The gains of the period came from computers and communications systems allowing businesses to operate globally with maximum information. “We knew every morning what was happening in each of our plants all over the world,” says Lawrence Bossidy, retired chairman of Honeywell International Inc., who has just published a book, “Execution” (Crown Business, 2002), about managing modern enterprises.

The payoff from such knowledge was control over investment, production and inventories. In short, information technology allowed efficient use of capital and resources and made more money available for all purposes, including paying the employees.

Investment in information technology has declined sharply from levels of the late ‘90s, a main reason for the economy’s sluggishness. But investment will revive because businesses and institutions need to upgrade constantly to reduce costs and improve operations in a world of global cost pressures.

There are widespread effects on the U.S. labor market from the global patterns of industry and commerce. With so much routine manufacturing work moving to lower-wage countries in Asia and Latin America, companies in the U.S. engage in the work of management, finance, marketing and other functions that put a premium on educated employees but have fewer good-paying jobs for those with less than a college education.

The decline of U.S. manu-facturing employment also has reduced the power of unions. Labor disputes these days often turn on union attempts to preserve health benefits or prevent outsourcing of work to nonunion or non-U.S. contractors. The present contract negotiations between Boeing Co. and the International Assn. of Machinists and Aerospace Workers (IAM) reflect union concerns on such issues. The IAM, which represents Boeing’s commercial airplane workers, intends to meet with a federal mediator Wednesday to discuss the company’s latest offer.

In California, the transfer of manufacturing work to other countries and states has reduced high-wage and benefit jobs, says “The State of Working California” report of the California Budget Commission, a private agency that shares research with the Economic Policy Institute. As a result, median family incomes in California rose more slowly than those of the rest of the country in the late ‘90s.

Where California once was far ahead of other states in terms of family income, now it is among the pack, with slightly lower family incomes than New Jersey, Illinois, Michigan, New York and Pennsylvania, according to the report.

A benefit of such studies is that they report changes in how Americans work and live now. The latest “State of Working America” reports that families added 20 hours to their workweek in recent years, meaning that more workers worked full time or had multiple jobs. The increased work also accounts in part for the growth in incomes and productivity.

Health insurance coverage increased for U.S. workers in the late ‘90s, after falling for more than a decade--another example of productivity gains raising living standards. Such job-provided benefits could be in danger if the economic recovery falters.

What’s the outlook? Not surprisingly, economists differ. Donald Straszheim, an independent economist based in Los Angeles, sees years of slow growth ahead, with the economy hard-pressed to create the required 115,000 jobs a month for newcomers to the work force.

Economist Edward Yardeni of Prudential Securities sees a gradually improving recovery, similar to the so-called jobless recovery of the early 1990s, when defense spending declined after the fall of the Berlin Wall.

The new decade is different. Defense spending is rising dramatically in the wake of last year’s terror attacks, and that alone promises a wide variety of jobs in the economy. So does the hiring that will be done for homeland security programs.

And finally, the global scope of U.S. companies and institutions holds out the promise that increasing productivity and high employment again will lift living standards of U.S. workers in this decade.

James Flanigan can be reached at jim.flanigan@latimes.com.