The Case for Expanding Industrial Policy to Cover Service Jobs
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A Harvard professor has a proposal for how government economic development investments could be shifted to better meet workforce and employer needs in the coming years.
Industrial policy has long centered on areas like manufacturing, supply chains and the tech sector. But in a new proposal, one expert suggests broadening the focus to create more good jobs in health care, retail and other service industries.
Parts of the U.S. labor market have not thrived over the last few decades, according to Dani Rodrik, a professor of international political economy at the Harvard Kennedy School of government. With many firms experiencing high employee turnover and workers dealing with low wages, waning productivity is at the heart of the difficulties, he said.
When it comes to increasing good jobs and improving the workforce, elected officials often lean on social policy, such as investing in education. But in his new policy proposal, “An Industrial Policy for Good Jobs,” Rodrik suggests reshaping industrial policy to give local agencies the federal funds they need to provide firms with training, tax incentives, and technological or infrastructure assistance to enhance productivity.
In return, those firms would be obligated to help their respective municipalities meet certain goals, such as creating a set number of good jobs by a specified date.
“That quid pro quo, I think, is the essential kernel of a good industrial policy,” Rodrik said at a panel hosted this week by The Hamilton Project, an economic policy initiative at the Brookings Institution.
The proposal points to the American Rescue Plan’s Good Jobs Challenge—which distributed $500 million to support local workforce systems—as a successful example of this kind of practice. But that investment is dwarfed by those Congress has committed to other initiatives focused on innovation, technology and manufacturing.
Manufacturing employment is declining globally. U.S. lawmakers have taken recent steps to try to shore up supply chains with legislation like the CHIPS Act, which is intended to grow the domestic semiconductor industry. But even this law, and similar measures, are unlikely to create enough good jobs for the nation’s workforce, according to Rodrik.
He makes a case that if industrial policy is meant to improve overall economic development, it no longer makes sense to focus policies on only manufacturing and tech.
Rodrik also argues that to create more good service sector jobs, the way policymakers approach industrial policy needs to shift.
“A typical way that we think about industrial policy is that we subsidize things, we just throw some money at things in the hope of changing private sector incentives,” he said
But a more successful strategy, in his view, is a collaboration involving business, academia, entrepreneurs and the government, where technology’s role is to assist workers rather than replace them.
Mary Kay Henry, international president of the Service Employees International Union, noted at the panel that investing federal funds in the service sector can help cut costs in the long term.
For example, the Affordable Care Act in 2010 included an innovation grant that provided technology to 75,000 homecare workers who were then able to work and communicate more efficiently, and therefore reduce costly hospitalizations, according to Henry.
“Unless we make a decision as a society to invest, there's no private sector investment that's going to be done on the scale that's required to provide that work in a way that's a living wage job,” she said.
She added that allowing workers to organize is important, but not enough on its own to address labor market challenges.
The combination of automation, other new technologies and globalization have all contributed to eliminating middle-skill jobs, such as clerical and retail work, while also undercutting career ladders in the service sector, Rodrik said.
This has not only fostered income inequality, but also adverse social, health and political outcomes, Rodrik said, as there is evidence that shows the disappearance of these jobs can increase support for right-wing authoritarian governments and erode democratic values.
You can read Rodrik’s full report here.
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