The U.S. economy added just 18,000 net new jobs last month, according to the Labor Department, pushing the unemployment rate up from 9.1 percent to 9.2 percent.
There may be a reason for the persistent high levels of joblessness — because many, in Washington and elsewhere, don’t really understand why companies hire.
Do businesses hire because Washington will spend taxpayer dollars to underwrite basic research, green energy, high-speed rail, and other politically popular programs? Some do, of course: those that directly benefit from such spending.
But the vast majority of U.S. companies base their hiring decisions on the need to fill critical skills shortages, gain a talent advantage over competitors, or ramp up production to meet customer demand. Companies don’t hire for altruistic or patriotic reasons. They hire for economic reasons: The cost of each new employee, according to the company’s calculations, must be exceeded by the additional revenue the employee will help generate. We call this “profit.”
Most major U.S. corporations have been reporting strong profits, but their hiring has lagged. So what’s the problem?
Economic historian Robert Higgs, a fellow with the Independent Institute in California, attributes America’s anemic job performance to uncertainty — not knowing what steps the government will take to get its fiscal house in order and what form the hundreds of still-to-be-written rules and regulations implementing various new laws will take.
If it survives legal challenges, the new health care law, for example, will affect virtually every employer in the country. The regulations implementing the law are still a work in progress. And then, of course, there will be a battle over how the regulations are interpreted. It all adds up to great uncertainty.
And this, as well as many other uncertainties, is holding the economy back.
The government’s main challenge, then, isn’t creating jobs, but clearing the fog, restoring confidence, and inspiring us to meet head-on the challenges of a changing global marketplace. Until this happens, many executives will continue to delay expansion and hiring decisions. And investors will sit on the sidelines, too.
So, how can America get its great job machine running at full tilt again?
First, Washington needs to change its focus — from orchestrating the economy to restoring confidence in it. When business executives feel uncertain about the future, they play it safe by sitting pat and waiting for the storm to blow over.
The politicians can restore confidence in the economy by showing they are serious about long-term fiscal discipline, rather than bringing the government to the brink of default as it is today. They can do this by laying out a clear plan of action so taxpayers, investors, and executives all know what to expect and when.
By laying out a course of action and sticking to it, rather than zigzagging whenever the political winds change, Washington can encourage more companies and investors to get back in the game.
Washington also needs to show the business community that it intends to maintain a level playing field by making the same incentives available to all companies and industries, not just a select few. We need to innovate across the board.
Third, we need to create the conditions where the American entrepreneurial spirit can thrive, by rewarding venture capitalists willing to risk their money on somebody else’s dreams and establishing policies that encourage banks to expand their business lending. Small, entrepreneurial companies for many years have created the bulk of the net new jobs in America. Microsoft, Google, Facebook, eBay, Amazon — none of these companies existed before 1975.
I don’t know what the next big thing will be. Washington doesn’t know either. Let’s let the marketplace decide.
The United States still has the world’s largest and most flexible economy. As wages in China rise and exchange rates move, U.S. manufacturing will become even more competitive.
To remain on top, Washington needs to clear the fog, end the uncertainty, and create conditions where businesses will want to invest in the United States. That’s when we’ll see a serious jobs boom.
Harold L. Sirkin is a Chicago-based senior partner of the Boston Consulting Group.
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