Don't Hire

Posted: Jul 09, 2009 7:23 PM
Don't Hire

The long-awaited triumph of the silicon-based life forms over the carbon-based life forms has arrived. No, I'm not talking about the new Star Trek or Transformers movies. I'm talking about a couple of data nerd economic reports released this week. Jobs are down and micro-ship sales are up. Why?

Jobs are down because regulatory uncertainty and high political risk factors have choked off the normal hiring which occurs during the recovery phase of the economic cycle. Today's JOLTS Report (Job Openings and Labor Turnover Survey) fills this all out in previously unrevealed detail. According to the monthly JOLTS the reason that last week's unemployment rate (based on a different survey than JOLTS) rose to an awful 9.5% and the payroll growth (based on yet another different survey) showed a loss of almost half a million jobs, is that there are very few job openings. According to JOLTS lay-off events are way down. Quite rates are quite low. In fact separations of all types are down considerable since last month. So why are the ranks of the unemployed growing? Nobody is hiring. The Job Openings rate hasn't budged since February.

But the economy is showing every sign of improvement. How are we building more and selling more if we aren't hiring more? We're doing it by hiring silicon brains rather than real people. I don't think that this trend is going to change any time soon. As long as we are pressing to less flexible labor markets, with higher minimum wages and more unionization, as long as we leave employers in the dark as to exactly what kind of government-mandated health insurance liabilities they're getting themselves into when they hire a human being, as long as we leave unemployment compensation as an unfunded mandate paid by employers with every growing durations of coverage, we will continue to tip the scale away from people toward machines.

Henry Hazlitt made this point in the 1940s in his Economics in One Lesson: when government forces up employment costs, it inadvertently accelerates automation. Back when automation meant dumb machines lifting heavy loads, the scope of job loss was more limited. Now that calculations, communications and to some degree even natural language processes can be outsourced from the human race entirely, the effect is stronger.

That's why productivity did so well in the midst of a deep recession. It will continue to do well even as unemployment adds another digit this summer. It's why the tech sector is probably the best growth spot in the American equity market. The micro-chip is the way the small-business class will survive Obamanomics. Unless and until Obama moves to the center or America chooses a successor who will the best advice I can give to you is this. Don't buy man-hours; buy machines.