Chamber Explains Why Companies Aren't Hiring

Who better to explain why firms aren't hiring than the nation's largest business federation? How to create jobs was a central focus of the U.S. Chamber of Commerce's State of American Business address today, given by its President and CEO Thomas J. Donohue. It's 2011 outlook was on the optimistic end of the spectrum, asserting that the year will provide 3.2% GDP growth and 2.4 to 2.6 million net new jobs. Of course, that will only bring down the unemployment rate by about 1%. What's holding the private sector back from hiring more aggressively?

The Chamber emphasized the "regulatory tsunami" Washington has imposed over the past few years as one of the central problems. It is very concerned with the stress that last year's health care reform puts on businesses, citing the 159 new agencies, commissions panels, and other bodies the legislation creates. It also attacked the Dodd-Frank financial regulation bill. Here the Donahue cited big numbers too:

Dodd-Frank contains 259 mandated rulemakings, another 188 suggested rulemakings, 63 reports, and 59 studies. My grandchildren will be old and retired before it is all implemented.

He also worries about the Environmental Protection Agency's aggressive approach to rulemaking, citing 342 new rules in the process of being developed and completed. The Chamber said it is not against climate change rules, but wants Congress to impose them instead of the EPA.

What's so bad about all that regulation? It's tough to do business in an environment where the rules of the game are constantly undergoing major changes. It's like trying to ground yourself while the floor is shifting beneath you. So the first step, the chamber thinks, is to reduce the regulatory burden stifling the private sector from expanding and hiring.

The other major component of the speech was trade. As my colleague Derek Thompson pointed out earlier, trade is a very important part of the formula of how the U.S. will grow, according to the Chamber. It wants to break down barriers to trade by the U.S. signing more free trade agreements and ensuring fair trade terms in all nations.

Of course, this still leaves a question unanswered. 2010 actually wasn't a terrible year for many firms, as profits swelled for many. Why weren't they hiring more, instead of building up their cash reserves? A journalist posed this question to Donahue in the press conference after the speech. He responded:

Guess what, if I'm running a company and I've laid off, let's say, 800 people in big company, I've figured out by now how to deal without (additional employees). I've used technology; I've gotten other people to do some of the work; I'm using some part-timers; I'm using some overtime. And why did I do that? I'm doing that because that's what I have to do to keep the door open, to keep the people that are working employed, and to return a reasonable return to my shareholders.

He went on to explain that some companies were sitting on so much cash in order to pay for upcoming acquisitions. He said that consolidation makes new regulatory burdens easier to bear, like health care reform. Once companies' regulatory costs are clear and under control, they can begin hiring, he said.

Finally, demand remains relatively low. Once spending picks up the Chamber believes that companies will be forced to invest in additional personnel in order to meet that demand. So as consumer and business spending grows, so should jobs.

It was pretty clear through what was said that the Chamber has become cautiously optimistic over the past several months. Some recent changes that have provided optimism included the November election results, the tax cuts, progress on the Korea trade agreement, and the White House speaking with more of a pro-business tone in its voice. Let's hope that the firms in its federation share its optimism and that stronger business sentiment causes them to enhance their hiring plans for the year.