Opinion: How to Crank Up the Job Creation Engine

(Feb. 9) -- Responding to President Barack Obama's call to make jobs the nation's No. 1 focus, Congress is poised to pass a jobs bill this month. Swift action on jobs is great news for an economy that needs it.

But by itself a jobs bill won't resolve a critical longer-term challenge that is hampering the country's ability to create new jobs: a lack of sufficient investment in infrastructure and innovation. That's why, in addition to a specific jobs bill, the government needs to create an economic climate for business to invest, innovate and hire.

These are the key findings of new research soon to be released by the Democratic Leadership Council.

While media accounts of struggling businesses and laid off workers catch the headlines, a more nefarious factor is hamstringing the nation's job seekers: a dearth of job creation.

Even during good times, some businesses fail and workers are temporarily unemployed. But these lost jobs are replaced by new jobs being created.

However, since 2000, the job creation engine has been sputtering.

From 1993 to 2000, the economy added an average of 2.6 million net new jobs each year. But over the next seven years, that figure fell to 1.1 million -- and those modest gains were wiped out by the financial crisis. (See chart at right.)

Unless we can reverse this trend, there will be little hope of replacing the 7 million jobs lost over the past two years, to say nothing of creating new jobs for our growing work force.

So why is the economy not producing enough new opportunities for the workers who have been forced into unemployment? What happened after 2000 to upend the incredible growth that had been taking place?

Our research pins the blame on excessive borrowing and consumption, combined with a historic drop in the nation's willingness to invest.

In the aftermath of each of the past seven recessions of the 20th century, investment always rebounded above its pre-recession level. But since the short economic downturn that bookended 9/11, American investment has never bounced back.

It turns out that President George W. Bush's tax cuts fed the nation's appetite for spending but did little to encourage saving, investment and innovation. The long-term effects of that underinvestment make the current struggle to create jobs even tougher.

Clearly innovation is the only path to long-term economic growth, and investment is the only way to drive innovation. Over the past two decades, business investment has closely tracked new job creation (see nearby chart).

This relationship holds true during both periods of recession and periods of growth. That's because businesses invest in capital and labor concurrently, and so, in the long run, economic growth and job creation go hand in hand.

We need to shift our focus from consumption-driven growth to long-term investment in broadband and wireless infrastructure, information technology, new energy technologies, smart grids, high-speed transportation and other forward-looking initiatives that will create jobs and improve our national well-being. Several studies, for example, have shown that fast, reliable broadband investment improves the operational efficiency of businesses, making it easier for them to reach new markets, expand their business and hire additional employees. This is particularly important for small businesses and businesses in small communities.

We have an opportunity to create a virtuous circle of innovation by investing in infrastructure, smart networks, cloud computing, smart grids and other pillars of the 21st-century economy. These investments will give us the best of both worlds: rapid job growth in the near term, and broad-based, sustainable economic and job growth over the long haul.

Investment in infrastructure and innovation can create a whole world of winners.
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Jessica Milano is a senior fellow at the Democratic Leadership Council.