Bruce Bartlett

The lack of employment growth continues to be the major political-economic problem facing the country, and it likely will remain that way through Election Day. Although there are many explanations for the weak jobs situation, the fact is that no one really knows why the economy has created so few jobs since the end of the recession in November 2001. Following are some ideas that have been put forward recently.

-- Businesses are not yet convinced that the recovery is sustainable. Press reports have quoted a number of businessmen saying that they are just not going to hire anyone until they are absolutely certain that they will not have to turn around and lay them off again.

Contrary to popular belief, corporate executives do not enjoy laying off workers. It is very painful for them and often traumatic. They wait as long as possible before taking such action, which is why the unemployment rate never rises until well after the beginning of a recession. Conversely, businessmen are reluctant to hire permanent new workers until well after the end of a recession.

With the growth of the temporary employment industry, it is now easier for executives to increase output without having to hire permanent workers. Since such workers have no expectation of long-term employment, they are much easier to remove should the expansion falter. Similarly, businesses find it easier to terminate contracts with outsourcing firms in India, which is one reason why this has become an attractive option for adding labor when the economic outlook is still tentative.

-- Contributing to the reluctance to hire permanent employees is the rising cost of employment, especially for benefits. Some employers are now arguing that they are at a competitive disadvantage compared with businesses in countries with national health insurance. In the United States, businesses mostly pay for health insurance out of sales, whereas in many foreign countries health coverage is paid for by broad-based taxes.

According to the Bureau of Labor Statistics, the average cost of creating a new job in the United States last year was about $50,000, based on an hourly compensation cost of $24.48. Of this, only $17.52 was for cash wages. Benefits and employment-based taxes paid by employers added the balance of $6.97. The breakdown goes like this: taxes, $1.95; insurance (mainly health), $1.86; paid leave, $1.64; retirement, 88 cents; and supplementary pay and miscellaneous, 64 cents.


Bruce Bartlett

Bruce Bartlett is a former senior fellow with the National Center for Policy Analysis of Dallas, Texas. Bartlett is a prolific author, having published over 900 articles in national publications, and prominent magazines and published four books, including Reaganomics: Supply-Side Economics in Action.

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