John Lott and Gary Burtless discuss employment

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LARRY KUDLOW, co-host:

So where are the jobs? Are they hiding in small businesses or is it truly a jobless recovery? With us now to debate jobs is John Lott, resident scholar at the American Enterprise Institute, and Gary Burtless, senior fellow at The Brookings Institution. I love this, we got AEI vs. Brookings--couldn't be better.

Mr. Lott, let me begin with you. From the end of December 2002, the end of December 2003, two million household jobs were raised, but the payrolls fell 70,000, so according to you it takes two years for the business establishment survey to pick up these small jobs. Is that true and is it a good explanation?

Mr. JOHN LOTT (American Enterprise Institute): Well, yeah, it's not quite two years, but what you have happening is that firms die and new firms are created all the time. And we have something called this Establishment Survey which is also every month and surveys 400,000 businesses to see whether they've hired new people or not. Problem is, is that survey's only updated every March for the firms that were in existence the previous March. So right now it's more than a year old. And the problem that you have happening is that if new firms have been created, you're not interviewing them to find out the new people that are being employed there.

KUDLOW: All right.

Mr. LOTT: And we have another survey...

KUDLOW: Yeah. Let me just go to Gary Burtless first...

Mr. LOTT: Sure.

KUDLOW: ...let him weigh in. Mr. Burtless, is it possible that higher after-tax take home pay from the lower tax rates and so forth is getting more people in to the work force? And that, in fact, as the National Federation of Independent Businesses say, there is a huge new start-up that's creating jobs that aren't being scored. Is that plausible?

Mr. GARY BURTLESS (Brookings Institution): Well, I think it's all absolutely the case that small businesses get created at this stage of an economic recovery and they are not being picked up by the employer survey. They're not covered by the employer survey. So that's true. Of course, it's also true that a lot of people have turned to self-employment because they've found it so tough to land a job with a normal employer. And so self-employment is a fall-back position for a lot of folks, so it's not necessarily all good news. But I generally agree that employment, if it could include the self-employed, has increased faster than employment picked up by the employer survey.

JIM CRAMER, co-host:

All right, Mr. Lott, I happened to be on a conference call today for a really great American company, Corning, and Corning said, 'We're not gonna make the same mistake. We see really good orders. We have really excellent business, including liquid crystal displays'--which they use for both TVs and for notebook computers--'but we're not hiring.' And they had just finished laying people off. I mean, isn't it for great American companies that just went through hard times still too soon for them to think about hiring without looking like they've thrown caution to the wind again?

Mr. LOTT: I'm sure that's completely right. The problem is, is that when you want to look at the employment picture, you just don't want to look at those old established firms. You want to go and look at new firms also that may see opportunities that, as Gary was just saying, when you have a recovery, that's the time when you start to see new firms being created. And so the type of firm that you're talking about provides you part of the picture, but it doesn't provide you the entire picture there and, unfortunately, the one survey that everybody concentrates on is looking at the type of firm that you're talking about, and not the new start-ups that are being created.

CRAMER: All right. Mr. Burtless, last night we had Harvey Golub on. Larry, I'm sure, would agree me that I thought he was excellent...

KUDLOW: Yeah.

CRAMER: ...former head of American Express, and he was saying, 'Look, this outsourcing overseas, it's not the worry that it should be.' What do you think about the idea of losing jobs to India, to China? Where is that in your calculus?

Mr. BURTLESS: Well, I think that at some point in the cycle that can be a big source of job loss. I think that if you take the longer view, though, the jobs that move off to India are going to be jobs that Indian have a comparative advantage in doing and I don't think that the total number of jobs in the United States is going to be affected very much by that. What trade affects is the kind of jobs we do in the United States and the kind of jobs that are done in India, and my guess is that the closer we're integrated with the Indian and the Chinese and the European and Japanese economies, the more jobs we'll have in the United States doing those things that Americans are very, very good at doing, which happen to be jobs which pay good wages on the whole.

KUDLOW: Might actually free up labor resources to do other things and increase business profits.

Mr. BURTLESS: Sure.

KUDLOW: John Lott, there's a view on Wall Street, Joe Carson, David Malpass, that we hired too many workers in the late '90s. Last two years of that boom, eight million new workers even though profits had already been falling by about 10 percent, and it took a while to work off that excess labor. Do you buy any of that?

Mr. LOTT: I'm sure firms get stuck with too high of inventories when demand turns down, just like they may get stuck with too many workers. I have no problem with that. I think that's a separate question, though, from what's happening to total employment right now, as I was saying. I mean, you...

KUDLOW: Gary Burtless, real fast to close this thing out--real fast, 20 seconds--economic view, growth next year or growth this year, '04, real fast?

Mr. BURTLESS: Given the speed of the growth of the economy, I can't help but believe we're gonna have higher employment one year from today, but the fact of the matter is, employment growth, no matter which measure you use, has been awfully slow.

CRAMER: All right. John Lott, resident scholar at the American Enterprise Institute, Gary Burtless, senior fellow at Brookings Institute. Thank you for a totally civil...

KUDLOW: Yeah.

CRAMER: ...and excellent discussion on job growth.

Mr. LOTT: Thank you.

Mr. BURTLESS: Thank you.

KUDLOW: Empirical.

CRAMER: Empirical, not ideological...

KUDLOW: Right. No, I think that's fair. I think that's fair.

CRAMER: ...and not drinking the Kool-Aid, as I was attacked the other day with.

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