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Why the "recovery" is jobless


Small and medium sized businesses are the dynamo of the U. S. Economy.  They are the engines of creativity, innovation, and job growth. 

They are also, and more importantly, people. 

These small and medium sized companies are most often private.  They don't answer to a board of directors or stock holders, but to their actual owners, who usually run the day to day operations.

They aren't hiring.

Carter: Economic Stagnation Explained, at 30,000 Feet

By Stephen L. Carter Bloomburg view May 26, 2011 12:23 PM PT

The man in the aisle seat is trying to tell me why he refuses to hire anybody. His business is successful, he says, as the 737 cruises smoothly eastward. Demand for his product is up. But he still won't hire.

"Why not?"

"Because I don't know how much it will cost," he explains. "How can I hire new workers today, when I don't know how much they will cost me tomorrow?"

He's referring not to wages, but to regulation: He has no way of telling what new rules will go into effect when. His business, although it covers several states, operates on low margins. He can't afford to take the chance of losing what little profit there is to the next round of regulatory changes. And so he's hiring nobody until he has some certainty about cost.


That is a rational and sound business response to regulatory uncertainty.  If this business owner guesses wrong about future regulation, new employees could rapidly become a financial liability eating into the company's narrow profit margin.  A small shift, on a narrow margin, can convert a profitable business into a bankrupt former company.

It's a little odd to be having this conversation as the news media keep insisting that private employment is picking up. But as economists have pointed out to all who will listen, the only real change is that the rate of layoffs has slowed. Fewer than one of six small businesses added jobs last year, and not many more expect to do so this year. The private sector is creating no more new jobs than it was a year ago; the man in the aisle seat is trying to tell me why.

Nor is it just the LSM who are insisting on facts which are no such thing.  The unemployment rate as reported by the Government makes adjustment for the presumed rate of small and medium company growth and new startups.  Those rates were last adjusted during the boom of the previous administration, and have not taken notice of the dramatic reduction in new startups and small to medium business growth during and "following" the recession.

It isn't just hiring that is too unpredictable, he says. He feels the same way about investing. He has never liked stock markets; he prefers to put cash directly into businesses he likes in return for a small stake, acting, in short, as a small- time venture capitalist.

"Can't do that now," he says. For people like him -- people who aren't filthy rich -- it has become too hard to pick winners. But he doesn't blame the great information advantages enjoyed by insiders. He blames Washington, once more, for creating a climate of uncertainty.


He's right.

The transparent government hoped for has changed into the most opaque in recent memory.  New regulations, and whole new regulatory agencies, are on the rise.  This trend generates further uncertainty, which further discourages small to medium companies from expanding.

On the way to my connection, I ponder. As an academic with an interest in policy, I tend to see businesses as abstractions, fitting into a theory or a data set. Most policy makers do the same. We rarely encounter the simple human face of the less- than-giant businesses we constantly extol. And when they refuse to hire, we would often rather go on television and call them greedy than sit and talk to them about their challenges.

Indeed.  Most who are setting the regulatory environment, and most who are reporting on the Government and the Economy, have not been small to medium business owners, nor have they worked in such businesses.  Small and medium business are, for them, an unknown land inhabited by denizens they do not understand, yet feel qualified to judge.

Our credentialed political class has a very narrow experiential base, and the arrogance of self declared elitism.  They need to be separated from the levers of power.


Hat Tip: Instapundit
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Comments (38)

Bestest jobs creator [email protected]!... (Below threshold)
Sep14:

Bestest jobs creator [email protected]!

The only job left to lose i... (Below threshold)
Sep14:

The only job left to lose in this dry heave recovery is the one that would actually spur the recovery.

If you catch my drift..

RG you nailed it. But they ... (Below threshold)
Don L:

RG you nailed it. But they know that,and are unconcerned, having reached most of their goal.
The faux good numbers and the "unexpected" bad numbers will continue until The Great Marxist takedown - Act II begins in 2012. After the second coming of the faux messiah, we won't see anymore numbers...these guys don't care - not as wise as Admiral Yamomoto, who at least after Pearl Harbor, had the sense to wonder; I fear we have awakened a sleeping giant."

This crowd doesn't fear giants or God.

To paraphrase Fred Allen: W... (Below threshold)

To paraphrase Fred Allen: What Obama knows about economics you could put in the navel of a flea and still have room for a caraway seed and Nancy Pelosi's heart.

"On the way to my connectio... (Below threshold)
sam:

"On the way to my connection, I ponder. As an academic with an interest in policy, I tend to see businesses as abstractions, fitting into a theory or a data set. Most policy makers do the same."

This is the same situation with things like Romneycare or Obamacare.

It is all an "experiment" to the technocrats. To us, it is a matter of life.

Good post. One ot... (Below threshold)
Tsar Nicholas II:

Good post.

One other point is salient and is worth mentioning:

Obamacare already has turned a bad labor market into an even worse labor market. Companies just below the 50 employee threshold of Obamacare simply are not going to hire new workers, even if they're busy enough to need those workers. Nobody wants to cross over into that 50 + total employee range and thus be subject to Obamacare mandates. It isn't worth it to them. They'd rather squeeze more productivity out of their existing workforce or even pay a lot more overtime if necessary. New workers these days are anathema to small businesses. Another "victory" for Obama, Reid, Pelosi & Co. Sigh.

When Bush was dealing with ... (Below threshold)
retired military:

When Bush was dealing with 4-5% unemployment the buzz word of the day for the MSM was "jobless recovery". Obama bounces between 8.5% and 9+ and you dont hear a word from the MSM.

The 'best administration, e... (Below threshold)
GarandFan:

The 'best administration, evah!' is peopled by those who think they know everything.

Given their track record so far, it's a wonder they publish any numbers at all.

You are basing your argumen... (Below threshold)
Art W:

You are basing your argument that the 'recovery is jobless' on one person's opinion.

Wow. Fortunately, facts show you are wrong - dead wrong.

I have run a small business... (Below threshold)
Jeff Blogworthy:

I have run a small business for 20 years. My main reason for not hiring is that there is simply not enough work to sustain a substantial payroll. My business, and many others I know, is dependent on a growing construction economy. Architects, engineers, surveyors, contractors, graders, masons, roofers, mining operations for gravel, brick, concrete -- we're all hurting.

Well over thirty percent of homes for sale are currently in the hands of banks. There is at least a three year inventory of homes on the market. The promised construction on infrastructure that was supposed to be spurred by Obama's stimulus is a joke.

No wonder there is a "mancession,"

Art W:How 'bought ... (Below threshold)
Jeff Blogworthy:

Art W:

How 'bought laying some "facts" on us buddy? Or are your pronouncements supposed to suffice?

Art can't lay any facts, ju... (Below threshold)
TexBob:

Art can't lay any facts, just Moron.org, Organizing for A-holes, and Soros matters fraudulent talking points. More lame attempts by paid trolls of the leftard extremists.

"How 'bought laying some... (Below threshold)
Art W:

"How 'bought laying some "facts" on us buddy? Or are your pronouncements supposed to suffice?"

I didn't see any facts in the article above, or in any of the comments either. Just looks like the usual right wing foaming at the mouth over their hatred of Obama - for which there is no cure.

Facts mean nothing to someone who just hates - you guys can have have signs of a recovery all around you and you choose to not believe.

Spare me if I don't bother to waste time with facts. You won't listen anyway.

Art W:Unfortunatel... (Below threshold)
Jeff Blogworthy:

Art W:

Unfortunately for you, facts prove you wrong. Dead wrong.

Art W aka freedom fries for... (Below threshold)
Rodney Graves Author Profile Page:

Art W aka freedom fries forever argues by assertion.

The facts which support the "jobless recovery" and current record "misery index" can be found right here on Wizbang in the Out Cartering Carter post from May 16th.

"Wow. Fortunately, facts... (Below threshold)
SShiell:

"Wow. Fortunately, facts show you are wrong - dead wrong."

There you go dipping into the koolaide again!!! Keep it up and you will be sent to your room without supper!

I'va actually had this same... (Below threshold)
jim m:

I'va actually had this same conversation with other liberals and when you explain that businesses won't hire because they cannot be certain about the regulatory climate most actually get it. The only thing worse than bad regulation is the waffling that the obama administration does.

Why the "recovery" is joble... (Below threshold)
Sep14:

Why the "recovery" is jobless?

Because Berry is clueless!


Art Woop-

"You are basing your fact that the 'recovery is jobless' based on one opinion."


Ignoring the teeming millions of unemployed, if I said I went to Harvard, am a scholar and believe in affirmative actions mission statement would you believe Me?

Art has some secret facts t... (Below threshold)
John:

Art has some secret facts that show unemployment isn't really 9% I guess. Art the artical is one businessman's opinion why the unemployment rate is high and the recovery isn't generating jobs, these are facts already in evidence.

I tend to see businesses a... (Below threshold)
mpw280:

I tend to see businesses as abstractions, fitting into a theory or a data set. Most policy makers do the same.

With that phrase he tells us why we are so screwed. We have a government populated by academics who know nothing of the real world but are oh so willing to tell us how to do things.
mpw

As implied in Blogworthy's ... (Below threshold)
Bruce Henry:

As implied in Blogworthy's comment # 10, businesses hire exactly enough workers to meet demand; no more, but sometimes, short-sightedly, less.

His list of woes go back to the collapse of the housing market in 2006-7, not to any fault of Obama's. Unless one wants to argue that the 2009 stimulus was insufficient.

Hiring by small businesses has little to do with the regulatory environment. Again, small businesses hire, as best they can judge, exactly as many workers as they need to meet the demand for their product or service.

bruce henry demonstrates lo... (Below threshold)
Rodney Graves Author Profile Page:

bruce henry demonstrates logical fallacies for us:

As implied in Blogworthy's comment # 10, businesses hire exactly enough workers to meet demand; no more, but sometimes, short-sightedly, less.

Ignores points made explicitly in the article:

The man in the aisle seat is trying to tell me why he refuses to hire anybody. His business is successful, he says, as the 737 cruises smoothly eastward. Demand for his product is up. But he still won't hire.

"Why not?"

"Because I don't know how much it will cost," he explains. "How can I hire new workers today, when I don't know how much they will cost me tomorrow?"

He's referring not to wages, but to regulation: He has no way of telling what new rules will go into effect when. His business, although it covers several states, operates on low margins. He can't afford to take the chance of losing what little profit there is to the next round of regulatory changes. And so he's hiring nobody until he has some certainty about cost.

His stated reason for not hiring is not present need but future uncertainty regarding regulatory expenses.

His list of woes go back to the collapse of the housing market in 2006-7, not to any fault of Obama's. Unless one wants to argue that the 2009 stimulus was insufficient.

Those are his investment woes (direct investments in small businesses involved in supporting the housing construction trade). Not also that the "recovery" has failed to restore stability to the housing markets.

Thence to argument by assertion:

Hiring by small businesses has little to do with the regulatory environment. Again, small businesses hire, as best they can judge, exactly as many workers as they need to meet the demand for their product or service.

In the article we have a medium sized business owner telling us otherwise. What size company does Bruce own and run that he can authoritatively contradict said business owner?

Hiring by small business... (Below threshold)

Hiring by small businesses has little to do with the regulatory environment.

Spoken like a man who doesn't run his own business! Do you honestly think that if a business has X number of employees, needs to hire more "to meet the demand for their product or service" but knows that the government has decreed that "X+1" is the threshold for a myriad of new costs and regulations, that that would not be a deterrent to hiring?

Or if it has "X+1" employees when such a piece of legislation passes, that it does not seriously consider making the "+1" unemployed?

One of the first orders of business is to stay in business.


Actually I owned a Quizno's... (Below threshold)
Bruce Henry:

Actually I owned a Quizno's franchise for several years. A tiny business, yes, but one that often occasioned me to make hiring and firing decisions. Not once did I give a thought to "the regulatory environment" in making those decisions. We're talking about small businesses here, right?

Before that, I was an area supervisor for a regional chain of sit-down pizza restaurants. I was responsible for 9 stores, with a total of about 180 or so employees. I often made decisions as to whether or not Store X needed to hire a few more waitstaff or Store Z needed a few less cooks. Never had to consider "the regulatory environment" when making those decisions, beyond being sure we complied with INS rules and EEOC requirements. So don't make assumptions, bozoes.

And please note that I said "little to do" not "nothing to do" with hiring decisions. In "proof's" scenario above, he is correct. I am also correct, in my own limited experience, and in what I know about other small businesses I have experience with. Did I make an overly broad assertion? Yeah, I guess so. Excuse me.

And Rodney, the "man in the aisle seat" may be wholly imaginary as far as you know. He, if he exists, is no more an authority about all small businesses than I am, or you are.

BruceStatement A<br ... (Below threshold)
retired military:

Bruce
Statement A
"Hiring by small businesses has little to do with the regulatory environment."
Statement b
" Again, small businesses hire, as best they can judge, exactly as many workers as they need to meet the demand for their product or service"

Did you have a brain fart or something?

Regulations by their nature cost businesses money. They tell a business how to do something and generally it is not cost free to follow that regulation. When something costs money to a business they raise prices to offset those costs. The more their product costs the fewer people that can afford it and therefore the demand for that product goes down. Hence the businesses dont hire people to fill a demand that isnt there. Why isnt it there? Because the cost of making the item is driven up by regulation and therefore limits the amount of people who can afford the item.

Surely you are not that stupid to actually believe statement A, Bruce.


BruceJust because ... (Below threshold)
retired military:

Bruce

Just because you specifically didnt take those into considerations it doesnt mean that the chains you were a part of didnt take them into account and thus pass costs down in franchise fees. Are you saying that you didnt take health code regulations into account? You didnt take into account tax code regulations as far as bookkeeping goes?

I think you are being somewhat disenginuous in your statement.

BruceWhat haoppene... (Below threshold)
retired military:

Bruce

What haoppened when the minimum wage went up by say 50 cents an hour? did you keep the same prices, same number of workers, same hours for those workers as before?

Bruce Henry alleges:<... (Below threshold)
Rodney Graves:

Bruce Henry alleges:

the "man in the aisle seat" may be wholly imaginary as far as you know.

I view that possibility as exactly equal to the probability that your small business experience is just as imaginary.

In my experience, RM, food ... (Below threshold)
Bruce Henry:

In my experience, RM, food cost was more of a factor than labor cost. We always struggled to keep food cost below 30% (in the pizza business - it was closer to 40% at Quizno's) and still keep quality high. I didn't have much trouble, whatever the minimum wage was, keeping labor cost around 20%.

Yes, regulations tell a company how to do something and those instructions generally aren't cost-free. In my case, the government told me to "sell food that's safe to eat." I had no problem complying with that. Would you like the government to get out of the business of making sure food is safe to eat?

How about regulations mandating the strength of the metal airplanes are made from? I'm sure airplane manufacturers could make a little higher profit if they used substandard materials, and some of those profits might be used to hire more employees. Are we willing to make that choice?

Look, I've admitted that I made an overly broad assertion. I'm wrong to imply that government regulations don't affect the cost of business AT ALL, and therefore don't affect hiring. But, for many small businessmen, the fear of government regulation isn't the primary factor in hiring-or-not-hiring decisions - lack of demand is. You have a better argument in comment # 26, RM, than "the man in the aisle seat" does, in my opinion.

And I have to laugh about how some of my detractors automatically assumed I had no experience in business. What did you think, because I'm a liberal I've been on welfare all my life? Even back in the 70s while I was mis-spending my youth I had to work!

You are correct, Rodney, I ... (Below threshold)
Bruce Henry:

You are correct, Rodney, I could be making it all up. And so could the author of the article you link to. In either case, the man in the aisle seat is no more an authority on ALL small business than you or I.

BruceYou use the l... (Below threshold)
retired military:

Bruce

You use the liberal mime that we want all regulation done away with. Noone has suggested that. I worked in the pizza business for 3 years as well. One thing that I do know is that when people dont have work they dont buy things as much as if they do work. Things like pizza or eating out at fast food places. There are a ton of regulations which do nothing more than increase costs and do very little if anything for the business. A lot of the environmental crap is like that. LOok at the total cost of ethanol. Also as I stated corporations pass the costs on down to franchise holders which drive up business cost. I could go on but I believe you know what I am talking about. If not than you are either being disengenuous or have given us the main reason you are no longer manager of a small business.

and you never answered the question about the 50 cent per hour raise increase. What would your decision be as a small business owner of say a pizza place. Your employee costs have gone up 50 cents per hour. Now I know that profit margins on pizza delivery can be pretty good in some cases but I doubt you wont have to make a choice of raising prices, cutting hours, or cutting workers.

The NFIB Small Business eco... (Below threshold)
muirgeo:

The NFIB Small Business economic Trends surveys shows sales NOT regulation to be the biggest concern for small businesses. A sample of one is NOT very useful.


http://www.nfib.com/Portals/0/PDF/sbet/sbet201006.pdf

I could give a seminar, RM,... (Below threshold)
Bruce Henry:

I could give a seminar, RM, on the ridiculous things the franchisor does to drive up the cost to the franchisee - things that have nothing to do with regulation - in the case of Quizno's but I might say something to trigger litigation.

In my case, at the time I was in the pizza industry, and in this market, I never paid minimum wage anyway. I was paying cooks $5 and $6 an hour when minimum wage was $3.35. Had to, or I wouldn't have had any. Of course, when it went up we bumped a lot of folks up a little, but, let's face it: in the 15 years I ran pizza restaurants, from early 1985 to late 1999, the minimum wage rose exactly ONCE, from $3.35 to $5.15. So, no, we didn't struggle with it. As I said, a much greater challenge was food cost, which went up and down with speculation in the commodities markets and weather fluctuations - milk (cheese) and wheat (flour) being our main concerns.

This entire thread suffers ... (Below threshold)
Jeff Blogworthy:

This entire thread suffers from a problematic definition of "small business." One cannot argue intelligently regarding regulation of "small business" using the definition of most people vs. the definition of the U.S. government. Small business to me is one of a handful of employees. Of course (direct) regulation is not that big of a concern to us. We are too small to regulate.

However, the government definition is somewhat ridiculously broader:

Manufacturing: Maximum number of employees may range from 500 to 1500, depending on the type of product manufactured;

Wholesaling: Maximum number of employees may range from 100 to 500 depending on the particular product being provided;

Services: Annual receipts may not exceed $2.5 to $21.5 million, depending on the particular service being provided;

Retailing: Annual receipts may not exceed $5.0 to $21.0 million, depending on the particular product being provided;

General and Heavy Construction: General construction annual receipts may not exceed $13.5 to $17 million, depending on the type of construction;

Special Trade Construction: Annual receipts may not exceed $7 million; and

Agriculture: Annual receipts may not exceed $0.5 to $9.0 million, depending on the agricultural product.

Given the fact that polls of "small businesses" will include the 90 percent that do not come close to meeting the above criteria, they are nearly meaningless since they will be hopelessly skewed. You don't need a poll to know that excessive regulation of bushiness presents huge costs to all Americans both directly and indirectly.

That is correct, Jeff. And ... (Below threshold)
Bruce Henry:

That is correct, Jeff. And the argument is and should be about what is "excessive" regulation.

What say we start with the ... (Below threshold)
Rodney Graves Author Profile Page:

What say we start with the Income Tax Code and the CFR. How many stacked feet (or if you prefer, pounds) is too many?

What made this bit of gover... (Below threshold)

What made this bit of government interference particularly odious in the area of job creation is twofold, and both can be laid at the feet of Obama.

First was his dithering over the extension of the Bush tax cuts. Actually, he and his administration fought tooth and nail to eliminate them, but were unsuccessful. But in protracting the fight until the very last minute, he created uncertainty as to what the tax burder would be on everyone, including "small business".

Second, was Obamacare. Thousands of pages of new regulations, some with clauses "to be determined" later, left small business not knowing what the cost of any new employee might be.

When I was a hiring manager, I never wanted to hire someone I might need to let go, even in a year or two.

The fact that there are too many government regulations, which cost the consumers billions if not trillions ought to be indisputable.

The Obama administration brags about getting rid of a 40 year old regulation treating milk spill cleanups like oil spills. The regulation should not have lasted 40 minutes in a rational world, but government marches to a different drummer.

"a much greater challenge w... (Below threshold)

"a much greater challenge was food cost" Which is climbing fast due to an incoherent energy policy and a green weenie "turn food into energy" policy that cannot exist apart from government subsidies.

When the price of oil goes up (which could be mitigated by upping domestic production) the cost of growing, processing and delivering food to the consumer, even through the "pizza industry" does nothing but climb.




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