This policy memo brings together three important strands of current policy debate: jobs, innovation, and regulatory policy. Everyone these days is concerned about the slow pace of job creation coming out of the Great Meltdown. Over the past six months, the economy has generated less than 600,000 net new private sector jobs—hardly enough to make a dent in the 14.6 million unemployed.
A bigger issue, though, is that the job drought actually started well before the meltdown. In the last business cycle—running from 2000 to 2007—the private sector created 4.4 million net new jobs. But out of those, fully 74 percent were in the health/education sector. That is, most of the private-sector jobs were being created in places like hospitals, nursing homes, and universities that are heavily government-funded. In effect, the public sector has been keeping the job market afloat since the beginning of the decade.
Most distressingly, America’s great strength—its innovative sector—actually lost jobs during the 2000-2007 business cycle. This sector includes everything from aerospace to pharmaceuticals to telecommunications to software (see Table 1). Some individual industries added employees, but collectively the innovative sector lost almost
700,000 jobs from 2000 to 2007, before the bust hit.
That performance was far worse than anyone expected: In 2001, the Bureau of Labor Statistics published projections implying that the innovative sector would create 1.7 million net new jobs by 2007. In other words, the innovative sector had a shortfall of 2.4 million jobs relative to expectations, even before the bust.
There are promising signs, however, of a rebound in one part of the innovation sector: communications. Internet companies, along with firms engaged in wireless telecom and computer systems design, seem to be emerging as “job leaders” in the next economic expansion. Unfortunately, these companies are also embroiled in struggles with federal agencies – and among themselves – over whether more regulation is required to police competition in communications.
