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March 19, 2013

Three Steps to Spark Hiring in the US

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While the economy continues its slow recovery, employment lags. Yes, the unemployment rate has slightly fallen. But that derives from a mass exodus of potential workers from the labor market, and the failure of those who left the labor force during the recession to return to the job market. The labor force participation rate remains at its cyclical low.

There has been no significant improvement in the ratio of employed workers to the total population. At the nadir of the recession — four years ago — that number had fallen to a depressing 58.3. It now stands at 58.6. While the economy is no longer shedding jobs, job creation remains feeble.

The good news: Policymakers can take some simple steps to help spur job creation and spark a real recovery in the labor market.

Step one: Delay the enactment of the ObamaCare employer mandate and the ObamaCare exchange subsidies for two years. Earlier this month, several different Federal Reserve Bank regions reported that employers were delaying expansion and hiring due to the uncertainty of the healthcare law. Some employers are also choosing to have current employees work longer hours with overtime rather than hire more workers. The former route appeals because it keeps small employers under the workforce threshold that triggers the mandate and higher costs.

Provisions that discourage small-business hiring are particularly debilitating. Historically, small business does the heavy lifting that pulls the labor market into a robust recovery. But small business has lagged far behind in this recovery — a major factor in the funereal pace of job creation. Small- to medium-sized businesses, which employee between 100 and 1,000 workers, will be particularly hard-hit with the higher labor costs (almost 5 percent on average) attendant to ObamaCare. Business owners eyeing this new “tax on labor” are delaying expansion or investing in equipment that allows them to increase productivity without increasing their workforce.

Step two: Let the energy sector take flight. Ironically, the brightest spot in the U.S. economy is dampened by only one thing: federal policy. The energy sector is booming, creating tens of thousands of new, good-paying jobs. Employment in oil-and-gas development has surpassed its pre-recession level and shows few signs of slowing. New technologies allow for safer and cleaner extraction techniques for energy resources. Stopping energy development projects such as the Keystone oil pipeline not only costs jobs directly, it also indirectly keeps energy costs unnecessarily high for all businesses, hindering their growth as well.

A more productive role for Washington would be to focus on streamlining the regulatory process overseeing construction of new nuclear power plants. Nuclear power is a safe, proven, environmentally friendly energy option. Fast-tracking the onerous permitting process for all energy projects is far superior to wasting taxpayer dollars subsidizing energy technologies such as wind that are both insufficient (in terms of producing enough energy) and uncompetitive in the marketplace. America’s energy and economic needs can be achieved if President Obama and his regulators simply do no harm.

Step three is a big one: reaching the holy grail of tax reform — both corporate and individual. Organization for Economic Cooperation and Development economists state that a high corporate tax rate is the single most harmful tax situation for economic growth. Unfortunately, the United States still has the world’s highest corporate tax rate ... and our competitors continue to cut their top tax rates. Since 2000, Germany has reduced its rate from 45 to 15 percent. During that same period, the rest of the European Union countries have, on average, reduced their corporate tax rates by more than 10 percentage points.

On the individual side, a complex personal income tax code with high rates but many credits and deductions is inefficient and a drag on growth. And that’s our individual tax code in a nutshell.

Both parties recognize the need for tax reform, but not all politicians recognize that the goal should be to simplify the code and reduce rates rather than try to squeeze out a short-term spike in tax revenues. The former will produce larger, sustained revenue increases over time. That’s far preferable to the current tax structure, which penalizes risk taking and investment — both of which are needed for stronger growth.

Without taking at least some of these steps, the economic recovery could limp on but employment will remain moribund. To change this situation, Washington must change course. Instead of boosting burdens on business and restricting successful industries, policymakers should pursue initiatives that actively encourage hiring by private enterprises that can succeed in the marketplace without requiring subsidies.

-Hederman is director of the Heritage Foundation’s Center for Data Analysis.

First appeared in The Hill.

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