Thank you, Jeff [Sonnenfeld, Founder, President, & Chief Executive Officer of The Yale Chief Executive Leadership Institute].
This Summit provides a wonderful opportunity for our nation’s top executives and scholars to come together to discuss major issues facing our country. And, Jeff has a great program planned for you.
This afternoon, let me share with you some thoughts on the principles that are fundamental to the U.S. economy and its ability to create jobs. And I’d also like to discuss what this Administration and the U.S. Department of Labor are doing to help our country’s workforce remain competitive in the worldwide economy.
As many of you know, the World Economic Forum recently released its Global Competitiveness Report for 2007-08. And, this year, the U.S. topped the rankings as the most competitive economy in the world. Also, earlier this year, the International Institute for Management Development released its World Competitiveness Yearbook for 2007. And, of the 55 economies ranked by the IMD, the U.S. again ranked No. 1.
Our economy is continuing to produce new jobs, despite challenges in the housing market, record oil prices, and a mixed picture on consumption. In fact, we’ve now seen 51 straight months of job growth, which is the longest stretch of uninterrupted job growth in the 68-year history of the monthly payroll survey.
America’s workforce is the backbone of America’s economy. It is among the most innovative and productive in the world.
Last week, the Department announced that the national unemployment rate is 4.7 percent — a full point below the 5.7 percent average of the 1990s, which many look to as a model of economic boom. And productivity is high and growing steadily. In fact, productivity clocked in at a high 6.3 percent in the 3rd quarter — the largest gain since 2003 and well above last year’s average. This tracks with rising wages, which showed an above average increase in November, as well.
Even the UN — through the International Labor Organization — recently issued a report naming America’s workers the most productive of any nation. And that’s key to our discussion today because it’s clear that labor market flexibility is one of our nation’s most important competitive advantages.
As Secretary of Labor, I often meet with other Labor Ministers around the world. In fact, I have just returned from leading the President’s delegation to the inauguration of the newly-elected President of Argentina. And, it always startles audiences when they learn just how fluid and dynamic the U.S. labor force is. The U.S. labor force is over 153 million. And the average American worker in his mid-forties will have held more than 10 jobs — primarily because of continually better opportunities. During any given year, nearly forty percent of the jobs in our country change hands — again, largely because of better or greater opportunities. So change is the norm in our society, and it is the way workers advance.
This level of flexibility allows workers to find better jobs and earn higher salaries as they gain experience and advance in their fields. This upward mobility is the reason why one study found that 63 percent of workers earning the minimum wage were earning more within one year. Another study found that 80 percent of minimum wage earners had graduated to a higher wage within two years.
Despite what you may have heard, overall, real disposable income is rising — 12.0 percent since January 2001. That’s an average of over $3,600 per person since President Bush took office.
Also, it is important to consider total income, which includes wages and benefits, as wages alone do not give a full picture of how workers are doing in our economy. Indeed, more and more workers are asking for compensation in the form of benefits, rather than wages. For every dollar increase in employee compensation over the past decade and a half, 67 cents represented wages and salaries, while 33 cents represented benefits. These benefits include bonuses, paid leave, and employers’ health insurance, Social Security, Medicare, and retirement contributions.
And, not only does flexibility allow workers to find better jobs and earn higher salaries, flexibility is key to our nation’s economic stability, as well. Over the past six-plus years, our country has weathered terrorist attacks, natural disasters, rising oil prices, and a variety of other challenges. And even now, as the headlines announce the current challenges in the housing sector, our free market system continues to produce positive economic milestones worth noting. More than 8.35 million new jobs have been created since August 2003. That’s more than the eurozone and Japan combined. And 1.4 million net new jobs have been created since the beginning of this year.
Some deride this achievement by claiming that the new jobs being created are hamburger flipper jobs. But the opposite is true. Two-thirds of net U.S. job growth is in occupations that require more skills and higher education. By definition, they pay above-average wages. So our free market system is not only producing more jobs, but better ones, as well.
When the hamburger flipper argument fails to hold up, others point to income disparity. They claim that it is becoming more pronounced in our society. But that ignores the root cause of income disparity, which is our country’s transition to a higher skilled, knowledge-based economy.
Technology has changed the way every job is performed. Routine jobs that require few skills are migrating elsewhere. And jobs once considered routine, including manufacturing are now demanding higher level skills and a knowledge of technology. So employers are paying a premium for workers with these advanced skills. It is this wage premium, paid to workers with higher skills and more education, which is at the heart of income disparities.
The solution, therefore, is not to penalize those who invest in education and training by taxing away the wage premium they have earned through their hard work. The solution is to increase access to education and training, so that more people can advance up the income ladder.
Unfortunately, some policy makers are advocating retrenchment to an earlier era as the solution. They are touting European models of rigid labor market rules that lock in gains for a few at the expense of the many. And while some of these models may look attractive, they hold hidden pitfalls.
Some policymakers in the U.S. advocate implementing the Nordic Model, for example. They argue that it offers the best of both worlds — economic growth and a strong welfare state. But a close look shows that not everything about the Nordic model is worth emulating. Long-term economic growth in the Nordic nations has lagged that of the United States, due in good part to the burden of excessive government. Today, government expenditures — including transfer payments — in Sweden, Denmark, Norway, Finland, and Iceland average more than 48 percent of GDP — compared to less than 37 percent in the U.S.
It is not surprising that the U.S. is the most competitive economy in the world. Per capita GDP in the U.S. is more than 15 percent higher than it is in these Nordic nations. And a disproportionately large public sector comes at the cost of per capita disposable (after-tax) income, which in the Nordic countries is only about 65 percent of the disposable income of the average American.
Also, in the U.S., just slightly more than 16 percent of payroll jobs are with the government. In comparison, nearly one-third of Scandinavian workers are employed by the state. We believe the role of government is to create the climate for growth. But it is the private sector that creates jobs and prosperity.
This Administration believes strongly that one of the best ways to help our economy grow is to allow workers to keep more of their hard earned money. President George W. Bush has cut taxes six times. And, lower taxes have proven to be a strong contributor to economic prosperity. However, in comparison, the Nordic nations impose much higher tax rates on their workers. In fact, in every Nordic nation, the top tax rate is imposed on taxpayers with middle-class incomes.
The unbalanced and generous social safety net programs of the European models also create insidious incentives to remain out of work for long periods of time. Workers encouraged to stay out of the labor market quickly lose the ability to keep pace with technological change. This is exactly the opposite incentive that governments should be encouraging at a time when technology is increasing the pace of change in the growing, global economy.
Also — in an attempt to protect workers against dislocations — the rigid labor market rules of the European models make it impossible for companies to hire the talent they need and quickly adapt to new competitive opportunities. So enterprises cannot grow and create new jobs. The result is higher unemployment rates, especially among young people, which breed discontent and despair.
Take France and Germany, for example, where unemployment rates are over one and a half times as high as here in the US. And in 2006, about 17.6 percent of unemployed U.S. workers had been out of work for 27 weeks or more compared with an astounding 73.1 percent in Germany and 62.6 percent in France.
This is a waste of human talent and potential and a disservice to workers, especially in an era of rapid technological change. Perhaps that’s why German Chancellor Angela Merkle, in an extraordinary speech she gave at the World Economic Forum in 2006, said that one of her main tasks was to revive the work ethic in Germany. And recently, the Sarkozy government’s new Finance Minister said her goal is to slash France’s chronically high unemployment rate by rehabilitating the concept of work.
The bottom line is this: big government, excessive spending, and high tax rates hinder economic growth and limit prosperity and competitiveness. Adopting the European model would result in decreased labor market flexibility, which would hurt our country’s competitiveness. Right now, U.S. companies can make adjustments to their workforce to meet changing market conditions, allowing them to be more competitive. A more rigid labor market would percent such adjustments.
And, there are a number of other reasons not to adopt a European model. Another good one, for example, concerns our aging society. Today, seniors over 65 years of ago comprise 12.4 percent of our country’s population. This will rise to 20 percent by 2030. So, as people continue to live longer, healthier lives — they should be encouraged them to remain in the labor force longer, if they so desire. This will allow our society to continue to tap a valuable pool of talent and help our country deal with the financial impact of the retirement of the Baby Boom generation.
Unfortunately, the impact of European models, like the Nordic model, on growth and job creation have done little to dampen the enthusiasm for European social models in our country. And we can expect that as the pace of change accelerates, the sentiment in favor of new government interventions, mandates and taxes will grow.
Over the next year-plus, this Administration will continue to promote a pro-growth agenda and a strong education system for America’s workers. This is key to helping our workforce remain competitive in the 21st century worldwide economy. If our country is to remain competitive, we must ensure that workers have access to education and training that is relevant to today’s workforce.
Today, one of the reasons America’s economy is strong is because our workforce is among the most innovative and productive in the world. As I’ve said many times before — America is a beacon of hope and opportunity throughout the world and we shouldn’t fear the worldwide economy. America’s greatest strengths lie in our democratic institutions, respect for the rule of law, transparency, accountability, and the most creative and compassionate workforce in the world. These unique qualities comprise our country’s strongest competitive advantage.
So looking ahead, there is great reason for optimism as our country faces new challenges and opportunities. And by continuing to emphasize education and job training, we can empower workers and increase access to opportunity.