The Challenge of Creating Good Jobs

In their new book, “Good Jobs America: Making Work Better for Everyone,” Paul Osterman and Beth Shulman argue that the United States needs to worry about not just creating millions more jobs but also ensuring that the jobs are good ones.

By good jobs, the authors mean jobs that pay enough to support a family and provide decent, safe conditions. The authors voice concern that many middle-class jobs have disappeared or deteriorated into low-wage ones that cause families to fall below the poverty line.

Taking a view contrary to that of many economists and politicians, they argue that government can and should play a vigorous role in encouraging employers to create good jobs — perhaps by providing tax incentives that require employers to pay a living wage.

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Mr. Osterman is a professor of human resources and management at the Massachusetts Institute of Technology, and Ms. Shulman, who died last year, was a senior fellow at Demos, chairwoman of the National Employment Law Project and co-chairwoman of the Fairness Initiative on Low-Wage Work.

Talking with authors about their work.

Here are excerpts from an interview with Mr. Osterman.

What would you recommend that President Obama and Congress do to create more jobs?

I strongly want to argue you should not just talk about creating jobs but the quality of the jobs you create. The general point I would make is there’s a shortage of economic demand, and as a result, the government needs to create jobs directly.

The critique of that is, one, that it’s wasteful. The image is the government pays you to dig a hole and pays me to fill it up. There is a lot of work that’s not like that, whether it’s building infrastructure or being day-care teacher or health-care provider, work that provides lasting benefits to society.

The other critique is this would crowd out private-sector jobs. When the economy has slack resources — and right now we have a high unemployment rate and low interest rates — it’s not true that you’d be crowding out jobs.

What do you mean when you say good jobs?

The concept of what are good jobs is very broad. We can talk about wages, about benefits, about autonomy at work. In the book we make it simple: we talk about wages. We look at two standards. One standard is two-thirds of the median wage. (The median wage is $17.60 an hour, the book says, and two-thirds of that is $11.73.) That’s a standard used internationally and in the states. If you’re below that, if you’re that far from the average, you’re really in difficulty in society.

The other standard is whether wages for a full-time worker are below the poverty line for a family of four. (That’s $10.60 an hour.) Nearly 20 percent of American adults work in such poverty-level jobs. That’s a remarkably high percentage.

Many people question the wisdom and efficacy of having government adopt policies to create good jobs. Many people say, for instance, if you get a good education, then don’t worry, you’ll find a good job.

One objection we hear is that these bad, low-wage jobs are transitory, that people just move through them on their way up. But that’s not true. Overwhelmingly adults stay in these jobs for years and years. It’s not Horatio Alger. It’s not transitory.

Then there’s the objection people raise that we can solve our problems through education. I don’t want to get in a box and say education is not important. But if you do a thought experiment and say all of a sudden, everyone has a degree from a community college, all these jobs won’t suddenly go away. There will still be jobs for janitors, jobs cleaning hotel rooms and chopping lettuce that goes into your salad. The question is, how much are they going to pay?

Then you also hear that the government shouldn’t be making employment standards. The book makes the point that you’ve always had labor market standards and that there’s broad support for that ever since the Shirtwaist Fire a century ago.

Another objection you hear is that if you try to raise the floor in the labor market, you’ll kill jobs. That’s what you hear all the time about the minimum wage, but if you review the research on the minimum wage, the effects are a lot less scary than opponents make you believe. And if you look at France and Germany, which have a far lower percentage of workers in low-wage jobs, the employment to population ratio for adults is much better than we have in the United States.

In your book, you say corporations and other employers play a central role in determining whether the jobs that are created are good jobs or not good jobs. Can you discuss that?

The book does not take the stance this is all about evil employers. It’s much more sympathetic than what you hear from some people. Employers are under intense competitive pressures. There are bad employers out there, there are employers that violate minimum wage and overtime laws, but they’re certainly not a majority. The fact that employers are under intense competitive pressures doesn’t mean you let standards be driven downward. You want to push the floor up.

Like all of us, employers look for the path of least resistance. The path of least resistance is not to invest in your work force, not to invest in a career ladder, to squeeze on wages and benefits, to make your work force more contingent and flexible.

At the same time, the human resources departments of most firms have been weakened. In many American companies, human resources is seen as the least prestigious function, a residual function. And labor unions are no longer in as strong a position to push for other behavior, to stop this drift downward in employment standards.

What would you do to help ensure that companies do indeed create good jobs?

What you need is a strategy, carrot and stick, in setting standards and positive incentives to raise the floor and assistance to firms in doing so.

Government, historically, in the United States has been very influential in setting employment norms. At the turn of the 20th century, it was civil service reform, and that became a model for private-sector corporations. During World War II, the War Labor Board was influential in shaping the labor market and labor peace.

Government can play an important role in incentivizing and modeling good behavior. It can use its zoning power or community benefit agreements so that if someone wants to build a large project and needs zoning approval, the government can set a wage standard as a condition for approval — for the construction jobs as well as the resulting jobs. Or if you use tax incentives to attract companies to your area, it should be required that those companies pay a living wage. A number of states have done that. Or if government outsources jobs, a living-wage standard should be applied to jobs that get contracted out.

There have been a number of experiments at the state level to provide tax incentives to encourage companies to train front-line workers. With training, workers could go from cleaning hotel rooms to being a line cook or waiter.

In the health-care sector, reimbursement schemes put enormous pressure on nursing homes to pay their certified nursing assistants poorly. That’s public policy. That’s not the market.

In a variety of ways, governments can play a positive role and do so by walking the talk themselves.

Moving China Up the Value Chain

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SHANGHAI — In “Run of the Red Queen,” a new book about China’s innovation drive, Dan Breznitz and Michael Murphree lay out a contrarian view of this country’s path. They argue that China should worry less about coming up with breakthrough technologies and focus more on what it already does best: making incremental innovations in everything from manufacturing to logistics.

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The authors, both at the Georgia Institute of Technology — Mr. Breznitz as an associate professor of international affairs and strategic management, and Mr. Murphree as a doctoral candidate — say China has shown strength in process innovation and creating new manufacturing systems. Rather than trapping China in low-end manufacturing, they say, these capabilities will power the Chinese economy for years to come and eventually allow China to move up the value chain.

Indeed, they argue that the Chinese government’s push to compete with the United States and Europe on novel ideas and breakthrough products may be wasteful and inefficient, partly because of government interference but also and because China has not yet reached an advanced stage of development. Here are excerpts from an interview with the two authors.

Q. In “Run of the Red Queen,” you argue that China’s innovation drive is surprisingly strong, but not in the traditional way we think about innovation as novel technologies or products. How is that so?

Dan Breznitz: One thing truly important to understanding China is the defining characteristic of today’s globalization: the fragmentation of production. Today, places specialize not in specific industries but specific stages or activities within those industries.

In different places — Taiwan, the U.S., South Korea — there are different stages of production in each industry. The next logical step in thinking about innovation, since industries are fragmented, is that different places need different systems and different kinds of innovation. China excels in different kinds of process or manufacturing innovation. This includes design for manufacturing, organization of production, sourcing and logistics.

China’s companies are extremely efficient at creating new versions, often simpler, cheaper and more efficient, of technologies and products shortly after they are invented and marketed elsewhere in the world. For instance, I can’t think of any company in the world that can have over 200,000 people in one location producing a wide array of electronic gadgets for multiple companies other than Foxconn in China.

The American military, the best fighting machine in the world, can hardly move 200,000 people into the exact locations it wants them in months, but this company moves engineers and production workers from line to line and product to product with amazing efficiency. This is production innovation. China does innovate.

In novel-product innovation, China is very weak. There’s no way around it. The central government is the main antagonist in the process. The political economic institutions and system in China make it so entrepreneurs can’t make profit by developing novel innovation. But this same system makes process and second-generation innovation very profitable and successful.

China doesn’t need to crave novel innovation. For China’s stage of development, with the amount of people it has, the size of the labor force, and the skills developed by China’s education system, this is a vastly smarter utilization of its muscle and brain power.

Q. Mr. Murphree, is China’s innovation drive misunderstood?

Michael Murphree: There is a tendency in the business literature and discussions to equate innovation with invention, measured as the output of patents and peer-reviewed articles or new products. From this perspective, if you look at the metrics, it is believed that if you have high numbers then you are innovative and will have growth. If you don’t, you’ll fade. This leads to a tired dichotomy: either China is already innovating, or it’s on borrowed time and will stagnate like other middle income countries.

Innovation is not just invention; it’s the whole array of moving and improving inventions so consumers get better, newer, and cheaper products and services. For example, consider the case of Techfaith, a Beijing company that produces innovative products that sell under other brand names but is not a contract manufacturer. A lot of what we think of as innovation is what we notice in the final gizmo, but the innovation is actually in the guts that make the device work.

Mr. Breznitz: Another example might relate more to most people’s experiences. Do you own an Apple computer? There’s a white power supply box on the power cord. That box has been improved with continuous R.&D. so it doesn’t go up in smoke and so it will do what it does ever more efficiently. This is entirely done in China. The company that makes the power supplies is constantly doing research to make them smaller, more efficient, cooler, cheaper, and less energy intensive. This can only be done in China because firms can find high-quality engineers and tell them, ‘You will make power supplies better’ and the engineers will oblige. What are the chances you can hire someone from an elite U.S. university such as Carnegie Mellon to do that? This gives China power in the global production networks.

Q. But isn’t a lot of this simply China’s size and low wages, giving it a strong manufacturing and cost advantage? And is it sustainable?

Mr. Breznitz: As long as we have a fragmented global system of production, you will need places that specialize in different stages to make “inventions” into real things at a price that people can afford.

Probably, over time, due to its critical mass of production capabilities, China can command more and more of a premium on these activities. Over the next 15 years, we think that China’s model is not just sustainable, but that China’s power will actually grow. I don’t think China needs to worry about indigenous innovation right now.

Q. In your book, it appears the Chinese government often seems to constrain development and innovation, either by interfering in markets or trying to use its resources to affect outcomes. What, in your view, should be the Chinese government’s role in spurring innovation?

Mr. Breznitz: What you’re trying to do when you create industrial innovation policies is to create agents that produce innovation. Unlike the Japanese or Korean developmental state where they tried to create a car industry where the product, market, and technology is defined, when fostering innovation you don’t know what the products will be or what the markets will look like. This means planning has limited effectiveness but does not mean there is not a large role for the state.

Look at the cases of Israel and Taiwan. The state has a role first as financier and stimulator of innovation. This is not done by strategically choosing winners but, in the case of Israel, by making capital available to entrepreneurs and scientists to pursue their ideas. The second role is to create ventures by making an institutional and economic framework in which entrepreneurship is rewarded. In the case of Taiwan, even after new ideas were developed, most businessmen perceived technological entrepreneurship as too risky. Hence the state directly created the first ventures in new industries, creating the model and market. But these were not state-owned or controlled. They were state-created and quickly spun-off private and entrepreneurial ventures.

For the Chinese government to have large projects that are mostly copying ideas or industries already developed elsewhere is not the way to go. Hence megaprojects in building wide-body aircraft or supercomputers may just be costly diversions in terms of innovation.

However, encouraging the diffusion of technology in China is an area the state can and should encourage.

Choosing winners is a dead end. Look at how China has done in rolling out telecom technologies. By trying to develop new technologies by government fiat, there has been a tremendous holdup in adoption of 3G and 4G.

Q. Mr. Murphree, is the problem in China that the state has too much control? And won’t simply allowing private companies more space to thrive allow China to move up the value chain and develop great, innovative companies?

Mr. Murphree: There is a belief, accepted on faith, that markets are organic and dynamic, and that if the government steps away, innovation will blossom. But there is a really clear role the Chinese government should play. At the most basic level, they should clearly define and enforce rules and regulations because markets are created by rules and laws.

Mr. Breznitz: Becoming a regulator and law enforcer is one point. But the reality is more complex. If you are to look at major innovative countries, Finland, Taiwan, Israel, and even the U.S., almost all great new technologies came in large extent thanks to government funding and pushing. Hence, apart from being the regulator, the state often stimulates and steps in. In Taiwan, the government gave training and much more to the semiconductor companies, and taught them how to make a profit. In Israel, without the state channeling money toward R.&D., pushing innovations and lowering the risk that entrepreneurs needed to take in order to do R.&D., there wouldn’t have been the Israeli high-tech miracle with its hundreds of companies listed on Nasdaq. So there is an active role for the Chinese government to play.

Q. So, after reviewing China’s growth situation and its efforts to drive innovation, what advice would you have for the government? What can Beijing do to drive growth and innovation?

Mr. Breznitz: The things that will help China have strength, sustain growth and make the country more profitable are to focus on its existing activities in production and development. China should put more R.&D. around those activities and make itself a player in even more stages and activities.

The second problem to address is that the finance system is broken. Improving it would do a lot. Make it easier and more transparent for companies to get financing.

Third, every big company, including Lenovo, now needs to have multiple ownership structures to engage in new and different activities. Trying to balance foreign, state, and private ownership forms and structures within the same organization or group of companies in order to participate in different market segments or economic activities is a drain on resources. Equal treatment for different types of firms would be beneficial.

And then there’s the rule of law. Fix that part. Making laws and regulations clear will go a long way. Uncertainly means higher risks.

R.&D., especially novel-product R.&D., is expensive, time-consuming and inherently risky. Uncertainty over political and economic institutions makes it even more risky and discourages investment or entrepreneurship in this area. We’re not even talking about intellectual property rights. This is about basic rule of law. Even if laws appear restrictive, having clear and enforced laws will reduce uncertainty and immensely benefit R.&D.-intensive enterprises.