New Rules for a New Economy: Employment and Opportunity in Post-Industrial America 9781501725593

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NEW RULES FOR ANEW ECONOMY

A Twentieth Century Fund Book ILRPRESS AN IMPRINT OF

CORNELL UNIVERSITY PRESS Ithaca and London

The Twentieth Century Fund sponsors and supervises timely analyses of economic policy, foreign affairs, and domestic political issues. Not-for-profit and nonpartisan, the Fund was founded in 1919 and endowed by Edward A. Filene. Board of Trustees of the Twentieth Century Fund Morris B. Abram James A. Leach H. Brandt Ayers Richard C. Leone Peter A. A. Berle Alicia H. Munnell Alan Brinkley P. Michael Pitfield Jose A. Cabranes Richard Ravitch Joseph A. Califano Jr. Arthur M. &hlesinger Jr. Alexander Morgan Capron Harvey I. Sloane, M.D. Hodding Carter III Theodore C. Sorensen, Chairman Edward E. David Jr. Kathleen M. Sullivan James Tobin Brewster C. Denny Charles V. Hamilton David B. Truman Matina S. Horner Shirley Williams William Julius Wilso Lewis B. Kaden Richard C. Leone, President Copyright© 1998 by The Twentieth Century Fund All rights reserved. Except for brief quotations in a review, this book, or parts thereof, must not be reproduced in any form without permission in writing from the publisher. For information, address Cornell University Press, Sage House, 512 East State Street, Ithaca, New York 14850.

First published 1998 by Cornell University Press First printing, Cornell Paperbacks, 2000 Printed in the United States of America Cornell University Press strives to use environmentally responsible suppliers and materials to the fullest extent possible in the publishing of its books. Such materials include vegetable-based, low-VOC inks and acid-free papers that are recycled, totally chlorinefree, or partly composed of nonwood fibers. Books that bear the logo of the FSC (Forest Stewardship Council) use paper taken from forests that have been inspected and certified as meeting the highest standards for environmental and social responsibility. For further information, visit our website at www.cornellpress.cornell.edu. Cloth printing

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library of Congress Cataloging-in-Publication Data Herzenberg, Stephen. New rules for a new economy : employment and opportunity in postindustrial America I Stephen A. Herzenberg,John A. Alic, Howard Wial p. em. "A Twentieth Century Fund book." Includes bibliographical references and index. ISBN 0-8014-3524-2 (cloth: alk. paper) ISBN 0-8014-8658-0 (pbk. : alk. paper) 1. Employment forecasting-United States. 2. Labor market-United States. 3. Service industries workers--Supply and demand-United States--Forecasting 4. Manufacturing industries--Employees--Supply and demand-United States--Forecasting. I. Alic,John A. II. Wial, Howard. III. Title HD5724.H43 1998 331.12'0973-dc21 98-18220

Contents

Foreword Preface

Chapter l Chapter 2

Recreating the Prosperity of the Past in the Economy of the Future

Vll Xl

1

The Service Economy and the Service Worker

21

Chapter 3

Work Systems

37

Chapter 4

The Dynamics of Change in Work Systems

57

Reorganizing Work: Using Knowledge and Skill to Improve Economic Performance

83

Chapter 5

Chapter 6

Business Organization

107

Chapter 7

Creating Multiemployer Institutions: Career Paths and Performance Improvement

123

v

CONTENTS

vi

Chapter 8

ANew Deal for a New Economy

149

Appendixes

175

Notes

191

Index

209

Foreword

F

rom 1940 to the middle of this decade, the proportion of American workers employed in the service sector increased steadily from about half to three-quarters. The corresponding decline in the share of manufacturing employment has evoked great consternation throughout most of this period. Many feared that replacing the tangible, durable output of factories with the talk and paper that services spew forth would be akin to replacing Fort Knox with a house of cards. Indeed, the growth of services has been widely blamed for the declining productivity growth, stagnant wages, and rising economic inequality plaguing the United States since 1973. But the derogatory stereotypes often assigned to service-sector work-"hamburger flipping" foremost among them-are ill-founded and misleading. Those who attribute the post-1973 economic blues to the expansion of services usually fail to note that this sector grew just as inexorably during the preceding decades of prosperity. It may be true that in some service industries productivity gains are difficult if not impossible to achieve. As the economist William Baumol has noted, a string quartet performance will always require four musicians to toil the same number of minutes. But services such as bank transactions, toll collections, and cashiering have become much more efficient with the advent of ATMs and electronic scanning devices. Analyzing the impact of this sector's growth is extremely difficult because the service sector defies generalization: it really is not a sector at all. Rather, it is the remainder of the economy after subtracting manufacturing, most government activity, and agriculture. The limited commonality among lawyers, nurses, pilots, teachers, cooks, waiters, and jan-

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FOREWORD

itors may be that they all work in a service industry. Caution is therefore advised for those who seek to draw connections between the increase in service employment and such economic trends as the decline in unionization, the persistence ofthe U.S. trade deficit, the increasing presence of women in the workforce, or the growth of "contingent" work. The authors of this book, economist Stephen Herzenberg, engineer John Alic, and lawyer-economist Howard Wial, do an admirable job of mapping out a meaningful picture of the various components of the service sector. Their reminder of the variety in the nature of service work should be of great help in future attempts to make economic sense of the broader economic developments related to the changing nature of work. Investment bankers may have difficulty relating what they do to the tasks performed by low- and average-wage employees, but the janitors, child-care workers, hospital orderlies, and others who toil in laborintensive, low-productivity service jobs have significant things in common. The much larger share of service workers engaged in complex employment that requires substantial training (sales, administration, low-level management) also faces a set of circumstances that can be similar in important respects. In developing their subcategories of service employment, Herzenberg, Alic, and Wial strive to clarify the interactions between each group and the economy as a whole. The authors draw boundaries around clusters of service jobs in ways that may convey a great deal of information about the forces that have exacerbated income and wealth inequality while hindering wage growth for middle-income Americans. The Twentieth Century Fund I Century Foundation has energetically sought to document, understand the causes of, and develop ideas for alleviating economic inequality. We have supported Edward Wolffs seminal report, Top Heavy, demonstrating that wealth inequality in the United States has worsened to a level last seen during the Great Depression. We also sponsored Robert Kuttner's Everything for Sale: The Virtues and Limits of Markets, which devoted considerable attention to the connections between inequality and markets. Our roster of forthcoming books includes the economists Barry Bluestone and Bennett Harrison's analysis of the relationship between economic growth and inequality, economics writer Jeffrey Madrick's exploration of slow productivity improvements, Cornell political scientistJonas Pontusson's investigation into why inequality is so much worse in the United States than in other developed countries, journalist Simon Head's reporting on the role of

foreword

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technology in inequality, Harvard's Theda Skocpol's bold proposals for federal action to alleviate inequality, and Wolffs examination of the extent to which schooling may or may not help eliminate inequality. Professor James K. Galbraith's forthcoming work on the effects of unemployment and other factors on inequality is likely to be one of the decade's most significant contributions to the debate in this area. This book began while the authors were employees of the federal Office of Technology Assessment (OTA), an agency created in 1972 to conduct research as a resource for Congress on policy