Lack of Demand, Not Lack of Confidence, Is the Reason that Businesses are Not Hiring

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Thursday, 15 July 2010 04:30

Like the school kid who is always coming up with silly excuses for not doing their homework, corporations always blame the government for their failures. Lately they have been whining that the reason they don't hire more workers is the uncertainty created by government regulations. The Washington reported these complaints on the front page.

While the article did present the views of some economists, there is actually a very simple way to disprove the businesses' claim. The number of hours worked per worker has plunged in this downturn and risen only modestly from its lowpoint. The current average of 34.1 hours is almost 2 percent lower than the 34.7 average in December of 2007, the month the recession began.

If firms would otherwise hire workers but are being discouraged by uncertainty or regulations then the number of hours worked per worker should be increasing, not decreasing. Firms would be working their existing workforce longer rather than hiring new workers. Since firms are actually using their existing workforce less, this implies that the problem is a lack of demand pure and simple.

Businesses pay their lobbyists lots of money to develop stories that will make regulations more pro-business. Reporters should be able to assess these arguments, not just pass along to readers any silly story that a lobbyist can dream up.