Why Aren't More Companies Hiring? Here Are 8 Reasons

More

The biggest question facing economists and Washington today is Why aren't more companies hiring? The way you choose to answer that question determines whether or not you liked the President Obama's speech.

1. They're not hiring because there's not enough demand. If there's one thing the president's plan is focused on, it's demand. Extending and expanding the payroll tax cut on employees gives the typical worker $1,500 extra cash next year. Extending unemployment benefits gives money to those most likely to spend it. By reducing taxes on business and spending money on roads and schools, the federal government runs a higher deficit which, by definition, means taking less activity out of the economy and borrowing to create more work. Still, one of the biggest drags on demand comes from housing, and the president's plan does not go as far as some people hoped toward helping Americans refinance their mortgage.

2. They're not hiring because of uncertainty. Uncertainty is a measure of how workers and businesses feel, which is unquantifiable. There's a decent argument that the president's plan would increase legal uncertainty but adding even more short-term provisions to the tax code. But at the same time, it might reduce economic uncertainty by raising GDP and incentivize hiring. Sort of a wash, as I see it.

3. They're not hiring because the workers are easily replaceable. Chinese workers are cheaper than American workers. The machines in car assembly plants are stronger and faster than humans at certain tasks. The president's not going to change those facts with his tax policy. But he can move the balance of power back to the U.S. by reducing the cost of having somebody on your payroll, and that's exactly what his plan does....

4. They're not hiring because workers are too expensive. In the president's plan, payroll taxes for smaller companies are cut in half and all new workers are 100% payroll-tax-free. That makes workers cheaper. But a simpler solution, critics say, would be an across-the-board payroll tax cut. Democrats "can't imagine that business would hire more because their wage costs fall slightly," Scott Sumner writes, who recommended a payroll tax cut for all companies regardless of size.

5. They're not hiring because there is not enough lending. A chicken-egg issue. Are the banks not lending to small businesses because there's too little demand for what those businesses are selling? Maybe. Or do the banks need help themselves before they're willing to lend? Maybe. If you buy the first interpretation, we're back to demand and the stimulus is obviously strong on demand. If you buy the second interpretation, you might put more stock into the Federal Reserve's ability to expand the money supply.

6. They're not hiring because of deficits. The plan promises to find savings to offset all $450 billion of spending and tax benefits. But under this plan our deficit would balloon, again, to a nominal record high in 2012. Those who think high annual deficits spook businesses will assume that even higher deficits spook businesses even more. Personally, I find this argument among the least persuasive. When the economy is stumbling, the deficit is an albatross. When growth is strong, the deficit is a tertiary issue. For now, solving the jobs crisis is a necessary first step toward solving the deficit crisis.

7. They're not hiring because of regulations. The president was explicit on this point. He would not abandon regulations in favor of achieving growth. If you're a regulations person, the speech was probably a huge disappointment. It's not just conservatives in this camp. There is a progressive argument for countercyclical regulation policy that says we reduce regulations when growth is poor and layer them on when growth is stronger. The president didn't buy into that in his speech.

8. They're not hiring because of taxes. The proposal cuts taxes dramatically, but temporarily. For some, this adds up to a huge tax cut. For others, it adds up to zero. Large organizations, they'd say, budget for three to five years, not 18 months, and they won't be suckered into adding thousands of jobs in 2012 only to pay much higher taxes on them for 2013 and after.

Jump to comments
Presented by

Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

Get Today's Top Stories in Your Inbox (preview)

Why Are Americans So Bad at Saving Money?

The US is particularly miserable at putting aside money for the future. Should we blame our paychecks or our psychology?


Elsewhere on the web

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register. blog comments powered by Disqus

Video

The Death of Film

You'll never hear the whirring sound of a projector again.

Video

How to Hunt With Poison Darts

A Borneo hunter explains one of his tribe's oldest customs: the art of the blowpipe

Video

A Delightful, Pixar-Inspired Cartoon

An action figure and his reluctant sidekick trek across a kitchen in search of treasure.

Video

I Am an Undocumented Immigrant

"I look like a typical young American."

Video

Why Did I Study Physics?

Using hand-drawn cartoons to explain an academic passion

Writers

Up
Down

More in Business

Just In