Nurturing Employment Recovery

President Obama's quick exit from Oslo and late arrival in Copenhagen suggest he's finally ready to shift focus from Nordic adulation and fighting climate change and diplomacy to fixing the American economy. About time. As former Clinton adviser Bill Galston observed recently, the president needs "to pivot and make 2010 the year of jobs."

White House operatives, as well as the Democrats in Congress, know high unemployment could bring big political trouble next year. But in their rush to create new jobs, policy makers would do well to focus on the quality of jobs created over the next year and beyond.

On this score, the slight improvements in the job picture are far from sufficient. The most recent analysis of employment over the past year by the Web site JobBait shows that almost all the growth has occurred in three fields--government, education and health care.

The problem: All these fields are financed by taxpayers or through transfer payments. They do little to expand our exports, and they employ few of the blue- collar male workers who have been hardest hit by the "hecession."

Unemployment for men is over 2.5% higher than for women, the largest gap in history. In all but a handful of states, male-dominated fields such as transportation, mining and logging, manufacturing and warehousing have declined rapidly over the past year. The only states to experience gains were North Dakota, Montana and West Virginia.

This reflects the critical weakness in the stimulus package. The stimulus focused on government bailouts and transfers of research funds to universities, while less than 5% went to basic infrastructure. But a greater emphasis on infrastructure would not only have created large numbers of construction jobs, it would have boosted our industrial competitiveness by eliminating bottlenecks in our transportation system.

The only big regional beneficiary of expanding government employment has been, unsurprisingly, the Washington Beltway. Indeed, the number of federal bureaucrats making $100,000 or more jumped from 14% to 19% since the recession--and that's $100,000 before overtime and bonuses.

Elsewhere, the surge of government employment is petering out, particularly on the state and municipal levels. These jurisdictions are running out of money, since they are unable to print their own. Over the past year government jobs contracted in financially strapped states like California, Oregon, Michigan and Florida, as well as throughout the Northeast and New England. There's little hope for much improvement in 2010.

The other two sectors to enjoy significant growth have been education and health. Yet these fields do not seem to generate the broad-based economic growth needed to boost the overall economy. The region most often favorably linked with the "eds and meds" economy, Pittsburgh, has produced only modest, below-average job growth over the past generation. In fact, Pittsburgh has looked successful largely because the region has continued to hemorrhage its population to other regions, and it attracts few foreign immigrants.

Yet the fiscal damage from dependence on public and nonprofit employment has been enormous. The city suffers a billion-dollar unfunded pension liability, among the highest in the nation on a per-capita basis. Due to the heavy local presence of institutions of higher education, nonprofits and hospitals, who keep about 40% of Pittsburgh's property remains tax-exempt. In a sign of desperation Mayor Luke Ravenstahl recently proposed taxing tuition at local colleges and universities, eliciting outrage from the academic world.

More important, the Pittsburgh "eds and meds" model can't really be applied to a country whose workforce will expand by roughly 1 million annually over the next decade. The country now has fewer jobs than it had in March 2000, even though the labor force has grown by 12.1 million workers. There is no way we can produce enough growth depending on sectors that feed off taxpayers and private enterprise.

This shortfall will be particularly tough on millenials as they enter their 20s and 30s. Already those 18 to 24 now have an unemployment rate over 18%. Not surprisingly, as Morley Winograd and Mike Hais observe, lack of jobs now stands as the No. 1 concern for those under 30.

Another problem: We are now producing many more educated workers than we can gainfully employ. Information jobs may not be disappearing at the rate of industrial ones, but they have lost nearly 3 million positions since 1999. One likely result has been that returns to education--hyped by academics and "progressive" economists--have been dropping, particularly for younger workers. The unemployment rate for recent college grads is currently 10.6%, a record high.

So, how to create opportunities that pay well? Some place their hopes in either the "green" or "creative" economies. But the green sector has been notably ineffective in sparking growth across other parts of the economy. A much-hyped report issued by California green-boosters bragged "green jobs"--which included everything from public relations representatives to marketing managers, accountants and brick-layers--account for something like 1% of employment. Even with heavy subsidies by taxpayers, the "green" sector seems unlikely to rescue an economy with 12.5% unemployment.

Many politicians, particularly California's increasingly delusional governor, also fail to recognize the cost that the "green agenda" exacts on a struggling economy. A draft report by a state advisory committee estimates California's new draconian greenhouse gas laws could cost the state economy over $143 billion over the next decade. Efforts to spread this kind of regulation--either through federal legislation or EPA directives--would inflict similar pain to economies beyond the Sierra Nevada.

As for the much ballyhooed "creative" sector, video producers, financial analysts, architects and other workers in the non-tangible economy are less susceptible to green pressures than factory workers, truckers or farmers. Yet as the JobBait report shows, information, business and professional services haven't fared well over the past year. So far the only winners in professional and business services are in small states: New Mexico, Utah, South Carolina and, once again, West Virginia.

Perhaps it's time to abandon the notion that the U.S. can rely on preferred sectors--"green", creative or "eds or meds"--to turn around our vast economy. Theorists often forget the essential ties that exist between tangible and intangible sectors. The strongest growth in high-end services are usually propelled by growth in tangible industries, such as energy, agriculture or manufacturing. When those industries tank, as in much of the upper Midwest, high-end services decline with them.

Green jobs, too, require a strong economy. It is not by mistake that the big cities with the largest numbers of new "green" construction projects are not in Portland, San Francisco or other eco-capitals, but in more robust, if less organically obsessed places like Dallas and Houston. To create green jobs, you need to have growth, particularly in "hard" industries like construction and manufacturing.

Instead of favoring certain sectors, the administration's job "pivot" needs to focus across all economic sectors. This can be done in a pragmatic non-ideological manner. It could combine the increase in infrastructure and scientific research spending favored by many on the left with more market-friendly approaches--industrial tax credits and streamlining some regulatory standards--associated with conservatives.

In the end the goal of policy should not be just to create more jobs, but to nurture employment that will make our economy stronger and more competitive over time. Until that happens, the recovery will create an economy fundamentally unable to sustain itself in an ever more competitive global environment.

This article originally appeared at Forbes.com.