Of all the economic woes that face an individual or family, few rise to the emotional swing inherent with the loss of a job, or on the positive side, the offer of a job. In my thirty-five years of working, I have felt both that brutal sting and that elation.
I am often reminded of the movie, “Dave”, when Kevin Kline pauses in his White House presser and says somewhat wistfully, “have you ever seen the face of someone when they get a job?” (I’m paraphrasing). We all know the look, the pride, and the excitement associated with that event.
A job, I think especially for Americans, is an almost exalted thing for many. A job defines us to some degree. It reinforces our sense of self worth. A job means self-reliance, and with that a measure of freedom.
Even the loss of a home pales in comparison, I think. A home, while dear to us, is simply a possession. But a job means survival – and more. And this is our sad state as a country today. More than 15 million Americans that want jobs don’t have one. And millions more are either underemployed, working part-time, or have simply given up looking.
The even greater tragedy is that it doesn’t need to be this way. There are many things that can be done now to move us toward full employment, but ideology and bad policies are standing in the way.
The central questions that need to asked and answered are, I think:
1. What causes a company to hire someone new?
2. What is standing in the way of companies hiring?
3. What conditions would really rev up hiring?
So why does a company hire new employees? The short answer is often because they must. A company will always try to get by with the people they have, until the pressure builds to a point where they simply have to hire another person to get the job done – think earthquakes. Most often, this need coincides with additional demand (sales). As a rule, smaller companies will be the slowest to move as the impact of an additional salary or wage is the greatest for them.
But as you move up the food chain to larger businesses, given a reasonable financial condition, these companies will expand employment lower on that pressure curve, anticipating needs or demand, and make hiring decisions in advance. At its essence, whether big or small, companies hire based on increased demand, not met by other means.
Demand increases notwithstanding, a lot of factors can stand in the way of a decision to hire up. One major alternative is squeezing out more productivity from the people you have. Most companies have been traveling down that road for several years and have hit a wall relative to individual productivity, and as a rule, process improvement.
Uppermost, companies look at return on capital in their decision making. Much has been made of the $2 trillion in excess capital U.S. companies are ‘sitting on’. First, no company simply sits on capital. And, contrary to what many progressives or statists think, companies are not in business to employ people, they are in business to make money. Over time, they must do that to sustain themselves. Employees represent one of the means to that end. Capital will generally be employed where the returns are maximized. So, a company may use excess capital to buy back stock, increase dividends, or retire debt, all of which usually result in an increase in share prices. They may also choose to acquire another company. Or invest more in research or product development. Capital equipment purchases may also be used to increase productivity or meet additional demand, eliminating or decreasing the need for additional hires. In short, capital has a lot of ways it can be employed.
And capital is mobile, it can go where it wants in a ‘free’ society. Here or overseas.
Today, we have the headwinds to hiring of uncertain demand and a dense fog of uncertainty relative to the business environment. We have an administration that has, at every turn, shown itself as anti-business and anti free market. Key areas of concern for industry include tax uncertainty, onerous rules and regulations (more than 80,000 pages this past year), the future health care cost landscape, energy expenses, and the unknowns that may be lurking down the road from an unfriendly regime (ours).
These factors combine as a formidable roadblock to business expansion, most particularly as it relates to hiring.
Take energy as an example. We all know what this administration has done in regard to gulf drilling – they effectively stopped it for months on end – and it is still in slow motion. Similarly, the Feds are strangling projects (and job creation) in Pennsylvania, New York, the Western States, Alaska and the coasts. The coal industry is facing two new EPA rules that will crush both existing and future jobs. AEP, a major utility company, announced compliance plans to close 3 plants in West Virginia, one in Kentucky and two in Virginia.
U.S. Senator Joe Manchin says his heart goes out to the AEP workers that are facing an uncertain future.
“Let me be clear, it’s decisions like the one made by AEP today that demonstrate the urgent need to rein in government agencies like the EPA, preventing them from overstepping their bounds and imposing regulations that not only cost us good American jobs, but hurt our economy. Onerous regulations issued by the EPA are the reason that 242 West Virginians will lose their jobs, and that’s simply wrong,” Manchin said in a prepared release.
The continued assault on carbon based energy production is literally costing us hundreds of thousands of high paying jobs. But energy is just one demonstration of the destructive nature of government dictates and mandates.
Environmentalists recently nearly wiped out the California Central Valley farming industry to protect the Delta smelt (a little fish of little value). After generations of producing a bounty of fruits and vegetables, these farmers (tens of thousands) lost their crops for want of water the government had shut off, and transformed these residents from bread basket, bread winner status to food stamp recipients. From proud, productive members of society to poverty stricken citizens now dependent on government handouts. Tragic and evil.
John Stossel recently interviewed a South African immigrant (legal) single mom from Denver, who had for several years well supported herself and her children by braiding hair. She was shut down and forced to complete 1,000 hours of Cosmetology schooling to get a license – at significant expense and loss of income. Not one hour was devoted to anything related to hair braiding. Her story is not unique. Now one in three job categories require special licensing requirements.
In all, the total cost of regulations compliance and enforcement was estimated at $1.3 trillion in 2010. And hardest hit is small business, which historically accounts for upwards of 60% of new job creation.
Richard Fisher, the president of the Federal Reserve Bank addressed litigation expense in an interview on CNBC last week. He cited AT&T, which has approximately the same number of employees in Ohio, California and Texas. When AT&T analyzed its litigation expense in those three states, a mere 2% of that expense came in Texas. Texas has enacted sensible tort reform, and freed companies from excessive litigation exposure.
Texas has led the nation in new job creation, accounting for 265,300 of the 722,000 nationwide net jobs from June 2009 to June 2010. Mr. Fisher credits Texas’ success relative to other states to its rejection of the economic model prevailing in Washington, D.C. Hard to argue. Some key points: Texas has no state income tax. Its regulatory environment is business-friendly. It is a right to work state. And its tort laws have driven down litigation costs.
The cavernous divide between the approach Texas has taken to say Illinois, California, or the “smartest president ever” could not be more apparent or wider. More powerful unions, central planning, higher taxes and more government regulation and interference are all job killers.
The reasons behind the success of Texas and other business friendly states, is totally ignored by this administration as it doesn’t fit with their goal of “fundamentally transforming this nation”. We are now seeing what that phrase meant. Still like that “hopey, changey” thing?
By the way, on another Stossel show, a story was related about the Panama Canal project, ascribed to Hayek (a great economist – read his stuff). Whether it actually transpired or not, it is instructional. According to the story, Hayek looked down on the work being done and asked “Why are they doing this with shovels? Why not heavy equipment?” The answer, “It’s about jobs”. His reply, “Then why not use spoons instead?” I best stop now before I give Mr. Obama and his Keynesians any more ideas.
The newly released McKinsey report “An economy that works: Job Creation and America’s future” illuminates the jobs crisis:
* 7 million – decline in the number of US jobs since December 2007
* 60 months – projected length of “jobless recovery”
* 1 in 10 – the number of Americans who move annually, down from 1 in 5 in 1985
* 20% – proportion of men in the population not working today, up from 7% in 1970
* 23% – drop in rate of new business creation since 2007, resulting in as many as 1.8 million fewer jobs
And they lay out the challenges ahead…
* 21 million – jobs needed by 2020 to return to full employment
* 9.3 – 22.5 million – range of jobs created in low- and high-job growth scenarios
* 1.5 million – estimated shortage of college graduates in the workforce in 2020
* 40% – proportion of companies planning to hire that have had openings for 6 months
* 58% – employers who say that they will hire more temporary and part-time workers
These figures are startling and scary. For me, there were a few standout issues or challenges. America’s workforce is far less mobile than it was. Why, and why is this important? Three reasons come to mind. One, many homeowners are locked in because their home is underwater and they are unable to sell it and pay off the mortgage. Two, the average worker is older and less inclined to pull up roots. Three, the preponderance of two income families makes it more difficult to relocate – and locate two new jobs.
Another standout is the mismatch of skills. 40% of companies interviewed stated they have had unfilled job openings for more than 6 months. In short, they can’t find the people that match the skill set that these jobs require. And we are talking about hundreds of thousands of unfilled openings. These facts shed light on challenges in education, job training and career planning.
So what can we do to spur job creation? Mostly the opposite of what Washington is doing.
* Fundamental tax reform in the short term. Eliminate the corporate income tax and the capital gains tax. Longer-term, move to the non-regressive Fair Tax. It is a capital and jobs fountainhead – it taxes consumption, not production.
* Sign into law a five-year moratorium on new Federal rules and regulations to eliminate regulatory uncertainty. And announce a department by department economic analysis of existing rules.
* Repeal Obamacare and replace it with sensible health care delivery and free market driven reforms. Among them, tort reform, ability to buy health insurance across state lines, and total elimination of Federal mandates. Return current Federal Medicare and Medicaid payments to states as block grants with no strings attached. The free market delivers all our other goods and services effectively and efficiently at the lowest cost. Is the health care industry so unique that a competitive, free market system can’t find the best solutions?
* Get the federal government out of education. Eliminate the Department of Education and take steps in the states, like Wisconsin has, to rein in the destructive power of teachers unions that are ruinous to education. Find a way to get every person in the country to view the film “Waiting for Superman” to awaken them to our education challenges and answers. We rank among the top nations in education expenditures, and among the bottom in results (among developed countries). Quality education is key to growth and job creation.
* Focus now on zoning and environmental permitting practices to speed up approval and lower costs of plant expansion and construction. Create prepackaged solutions and simplified checklists for approval
* Reverse recent restrictions on angel and venture capital.
* Adapt Germany’s employment solutions. They intervene on day one when a worker loses a job, and immediately evaluates that workers skills, experience and education and formulates a plan, including retraining if necessary, to again – and quickly – find gainful employment. This is a public-private partnership and has proved very effective in not only shortening the unemployment period, but also ensuring industry needs are being met
* Sign the Free Trade Agreements the administration and Congress are stalling
* Improve the information flow to students at the high school level. We are an information rich society, yet good data on current and projected job prospects by industry and needed skill sets are not currently available to our students. Wouldn’t it be helpful for them to know in their freshman year where the jobs will be available in a macro sense and what will be required to acquire them? Meaningful career planning assistance could go a long way to eliminating the educational or training mismatch now in evidence.
* Go local and get involved – parents, educators, local government and employers can connect through the school board, city council, chamber and other community organizations to evaluate local needs and opportunities and partner in disseminating pertinent information; encouraging and modifying curriculum at the high school level and with local trade and technical schools based on those needs, and evaluating the “who we are and what we have to offer” proposition to attract and grow local employers.
* Shrink government and pass a balanced budget amendment. Government is now eating up about 24% of the economy, versus a historical level of 18%. It should be more like 10% or five – hey, I can always dream. Government is inherently wasteful, dictates winners and losers, disrupts and distorts markets, and generally strangles innovation and growth. Let’s minimize the damage.
I’m sure some of these tasks seem monumental and unachievable, but they aren’t. Look at the Harlem Success Academy (featured in “Waiting for Superman”), reflect on the success of the tea party movement in the 2010 elections, most particularly in the state and local election results. Witness what Texas has done – or Wisconsin. Look at the sea change Governor Christie is accomplishing in New Jersey. The power is in our hands if we choose to use it. The only thing that is certain is that politicians want to be reelected, and thus they respond to polls and vocal citizens. Be that vocal citizen and let your representatives know what you think needs to be done. And remind them frequently that you are watching. The numbers will dictate their actions.
So how about a new mantra: “I’m from the private sector, and I’m here to help.” Yes, we can solve this problem…. without, or despite, you know who.
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