The Case for Expanding Industrial Policy to Cover Service Jobs

Industrial policy has long focused on areas such as manufacturing, supply chains and the technology sector. But in a new proposal, an expert suggests broadening the focus to create more quality jobs in healthcare, retail and other service industries.

Parts of the US job market have not developed in recent decades, says Dani Rodrik, a professor of international political economy at the Harvard Kennedy School of Government. With many companies having high employee turnover and low-wage workers, declining productivity is at the heart of the difficulties, he said.

When it comes to creating good jobs and improving the workforce, elected officials often rely on social policies, such as investment in education. But in his new policy proposal, An Industrial Policy for Good Jobs, Rodrik proposes reshaping industrial policy to give local authorities the federal funds they need to provide companies with training, tax incentives and technological or infrastructural support to increase productivity.

In return, these companies would be obligated to help their respective communities achieve certain goals, such as creating a certain number of good jobs by a certain date.

Also Read :  4 best paying jobs and the degrees you need for them

“That quid pro quo is, I think, the very essence of good industrial policy,” Rodrik said at a panel this week hosted 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 type of practice. But that investment is dwarfed by those dedicated by Congress to other initiatives focused on innovation, technology and manufacturing.

Manufacturing employment is declining worldwide. US lawmakers have recently taken steps to try to prop up supply chains with legislation like the CHIPS Act, which aims to boost the growth of the domestic semiconductor industry. But even this law and similar measures are unlikely to create enough good jobs for the country’s workforce, according to Rodrik.

Also Read :  Culver City Tops List of Most Expensive Cities for Business

He argues that if industrial policy is intended to improve overall economic development, it no longer makes sense to focus policy solely on manufacturing and technology.

Rodrik also argues that the way politicians approach industrial policy needs to change in order to create more good jobs in the service sector.

“A typical way we think about industrial policy is that we subsidize things, we just throw some money into things hoping to change the private sector incentives,” he said

But a more successful strategy, he says, is a collaboration between business, academia, entrepreneurs and government, where technology’s role is to support workers rather than replace them.

Mary Kay Henry, international president of the Service Employees International Union, noted on the panel that investing federal funds in the service sector can help reduce costs over the long term.

For example, in 2010, the Affordable Care Act included an innovation grant that provided technology to 75,000 home care workers, enabling them to work and communicate more efficiently, reducing costly hospital stays, Henry said.

Also Read :  Ex-Stripe exec wants staying power over huge growth

“Unless we as a society make an investment decision, there will not be private sector investment at the scale required to do that work in a way that represents a living wage,” she said.

She added that empowering workers to organize is important, but alone is not enough to address labor market challenges.

The combination of automation, other new technologies, and globalization have all helped eliminate mid-skill jobs like clerical and retail work, while eroding career ladders in the service sector, Rodrik said.

This has not only fueled income inequality but also adverse social, health and political consequences, Rodrik said, as there is evidence the disappearance of these jobs can increase support for right-wing authoritarian governments and undermine democratic values.

You can read Rodrik’s full report here.