Free Markets, Free People

So why aren’t businesses hiring?

For a number of reasons actually.  Some numbers tell the story:

Two years into the recovery, hiring is still painfully slow. The economy is producing as much as it was before the downturn, but with seven million fewer jobs. Since the recovery began, businesses’ spending on employees has grown 2 percent as equipment and software spending has swelled 26 percent, according to the Commerce Department. A capital rebound that sharp and a labor rebound that slow have been recorded only once before — after the 1982 recession.

Demand has increased enough that business is producing at least as much as it was before the recession, according to the NYT, but businesses aren’t hiring.  Why?

Well, in lean times, headcount is the first casualty.  Layoffs are the rule.  That’s the fastest way to reduce the bottom line and either cut the losses being suffered to a manageable level or eek out a profit.

But, you say, once the recession is over, shouldn’t they rehire?   Well, like all markets, not if the cost of the commodity is too high (labor) and an acceptable alternative is available (equipment).  In this case that appears to be software in many cases.  

So – business cuts back during bad times, finds it can either get along without the extra headcount or finds a technological alternative (equipment) and when a level of prosperity returns, doesn’t hire (although I’m not sure I’d agree a proper level of prosperity has returned at this point, but I think it is clear that much more employment was expected by now, which is why we see the word “unexpected” appended to every down employment report).

Why is this happening?  Well in addition to the above, there’s an added problem that is often ignored or not mentioned.  Government tax policies.  In the case of equipment buying, the government has incentivized such purchases to the detriment of another – namely employment (labor).

With equipment prices dropping, and tax incentives to subsidize capital investments, these trends seem likely to continue.

“Firms are just responding to incentives,” said Dean Maki, chief United States economist at Barclays Capital. “And capital has gotten much cheaper relative to labor.”

Indeed, equipment and software prices have dipped 2.4 percent since the recovery began, thanks largely to foreign manufacturing. Labor costs, on the other hand, have risen 6.7 percent, according to the Labor Department. The rising compensation costs are driven in large part by costlier health care benefits, so those lucky workers who do have jobs do not exactly feel richer.

There’s your choice as a business – lower prices and tax incentives to purchase software and equipment or higher labor costs for workers.  If the machine can do the job, the business doesn’t have to pay healthcare, payroll, payroll taxes, etc.  In fact, the machine gives them a bottom line write off on their tax bill.  It’s a no-brainer.


Twitter: @McQandO


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10 Responses to So why aren’t businesses hiring?

  • McQ it isn’t just the cost of an employee.  It is that in the present circumstances with ObamaCare, most people feel they CAN’T know the costs of an employee.
    That leaves too much unknown risk in people’s minds.

  • and sorry, call it what you want, it’s not a recovery yet.
    and the Administration is doing every thing it can to keep the business community and environment uncertain and hesitant.

  • Where did you source the quotes from?

  • Also, you have to be able to budget the cost of the employee.  If that cost is entirely unpredictable (particularly your compliance costs) then you can’t take the risk that the employee who’s headcount is X now will be 3X in a year.

  • It’s called voting with your wallet. The beauty is we can all participate in various degrees and we don’t have to wait until November 2nd to do so. Call it a siege, call it starving the b@stards out, I have large projects that have been placed indefinitely on the back burner, until sanity prevails, or a true conservative get elected, which ever comes first. It’s my money and I refuse to reward failure. It clearly makes no sense to invest in a Marxist economy. I am hardly alone in that logic. Unavoidably, Øbama’s ill-conceived experiment in Socialism will leave lasting scars.

  • The economy is producing as much as it was before the downturn, but with seven million fewer jobs.

    Well, using the Keynesian GNP notion of “Spending = The Economy” gives the lie to that, when the government spending is the vast majority of GNP growth over the past fours years (yes, since the Dem’s took over, not merely when TAO took over.
    One should also suspect that much of that productivity comes from salaried people who normally work 40 hour weeks now putting in 50 hours or more.
    Furthermore, increases in GDP (as a factor of government spending) does NOT equate to greater standard-of-living. You cannot consume what you don’t create (produce) first. We borrow money from China and send it back buying their consumables. Americans would be well served to grasp the fallacies inherent in the “official stats”, especially those who should know better.

    • Sorry if that (above) is off on a tangent, but the very premises of the measurements are flawed.
      Business will not invest until they know all the rules (taxes, fiscal policy) coming down  the road, and they will not hire if the entire 50,000+ pages of he Federal Register makes it prohibitive and grossly uncertain (see: schizophrenic EPA and SEC rules).

  • Demand has increased enough that business is producing at least as much as it was before the recession, according to the NYT, but businesses aren’t hiring.
    New home sales and car sales aren’t back to the pre-recession level.  Two not insignificant chunks of the economy.  I’m hard pressed to believe anything else is back.

  • Businesses exist to earn a profit. If they cannot convince management that they know what all their costs will be, they cannot price their goods and services.  Healthcare is still up in the air.  What will all this newly printed money do to the dollar?  Interest rates?  What will energy cost next year?  Air fare?  Shipping?  All the new certifications, inspections, record keeping and administrative reports?  Will anyone have any money to buy anything?

  • Obama feels that businesses are in business to provide jobs to workers (sorta like govt) and not to umm make a profit.  Because we all know that profits are evil.