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Home Publications Blogs Beat the Press The Washington Post Reports Businesses Tell Them That Stimulus Will Boost Hiring, but Doesn't Realize It

The Washington Post Reports Businesses Tell Them That Stimulus Will Boost Hiring, but Doesn't Realize It

Friday, 20 August 2010 21:42

The Washington Post interviewed several business leaders who told them that additional stimulus would cause them to hire more workers. However, because of its poor grasp of economic relationships, it failed to understand what the business leaders were saying.

The article begins by asserting that:

"Many Democrats say the economy needs more stimulus. Business lobbyists and their Republican allies say it needs less regulation and lower taxes.... But here in the heartland of America, senior executives say neither side's diagnosis fits."

The article then cites several top executives who say that they will not hire until they see more demand. This is of course exactly the argument of those who urge more stimulus. Stimulus spending will hire workers and/or put money in their pockets through tax breaks. This will cause them to spend more money (the saving rate is still quite low by historical standards), which will translate into more demand for businesses. According to the executives interviewed in this article, additional demand will lead them to hire more workers.

The article also attributes a reluctance to hire workers to uncertainty about the future or pessimism. There is zero evidence that the failure to hire more workers is attributable to anything other than weak demand.

If firms were changing their hiring behavior due to pessimism, then we would expect to see an increase in hours worked per worker. We don't. The increase in average weekly hours since the low-point last fall has not been more rapid than in other recoveries and average weekly hours are still far below their pre-recession level. So, there is no evidence to support the view that hiring patterns are responding to demand any differently than they had in the past.




Comments (9)Add Comment
Optimism, pessimism
written by urban legend, August 20, 2010 11:47
What in the world is inconsistent between insufficient demand and pessimism about the future? There are always fluctuations for any time period. Does not the potential employer need to have optimism that the next demand uptick will not be just a blip but will be sustained in the future?
Fixing employment remains job #1
written by AndrewDover, August 21, 2010 6:57

shows how workers's fear has increased since mid-2008.

http://www.gallup.com/poll/112...nding.aspx shows how their reported daily spending has dropped from $83 (Dec 2008) to $63 (Aug 10).
Would it were possible to use reason and democracy to find economic ways to better our lives.
written by Scott ffolliott, August 21, 2010 9:16
Would it were possible to use reason and democracy to find economic ways to better our lives.

The Washington Post can begin to help the economy by raising the wages of all of those who work for this media business but especially those at the lower end of the pay scales. Even better they can transition from a 40-hour workweek to a 30-hour workweek keeping the 30-hour workweek wages the same as the 40-hour workweek.

Well-treated workers are better and more productive workers
written by izzatzo, August 21, 2010 9:33
The increase in weekly hours worked as evidence of uncertainty and less hiring doesn't square well with a corresponding return to pre-recession levels of full employment levels of weekly hours. It sounds odd to claim in effect, that uncertainty if it exists, is consistent with full employment, and both are consistent with high weekly hours.

If employers were influenced more by uncertainty of government interference than expected low demand, using workers for more hours to avoid hiring new ones is consistent as long as there's enough demand to do that. But that doesn't mean the same demand is sufficient in the aggregate to attain full employment, which could be much lower.

Baker seems to say on the one hand, that high weekly hours can represent uncertainty and sufficient full employment demand at the same time. So uncertainty would result in less hiring and more hours per worker, but given the pressure of underlying demand that is really there, attainment of full employment at pre-recession levels is implied.

On the other hand, low weekly hours is said to represent low aggregate demand coupled with an implied absence of uncertainty, so uncertainty and demand are presented as mutually exclusive when demand is low.

In effect, Baker is saying that uncertainty doesn't matter even if it does exist, because it's redundant, dominated by demand in either case of low demand or full employment demand, confirmed by respective levels of weekly hours.

Specifically, if a high degree of uncertainty was strong enough to offset high demand and still cause unemployment with reduced hires, it would still appear as increased weekly hours according to Baker. But that's the same result if high demand dominates high uncertainty in the other direction, to attain full employment despite the uncertainty, also reflected as high weekly hours.
written by J. Miller, August 21, 2010 11:13
Isn't increasingly insufficent demand inevitable with perrenial rise in productivity? Have we reached a tipping point in that regard?
It has now been over 100 years since we leveraged labor-saving technology to actually save labor, i.e, to reduce the number of people working, or the hours worked -- since the child-labor and eight-hour day movements. Since then the productivity dividend has been preempted by higher profits, largely throughout and almost entirely in recent decades.
We still seek full employment and still define that as all adults working 40 hours a week (and we've added women to the work force in the meantime).
But that is enormously more production than 100 years ago. And we passed well over 100 ago the point where even a majority must work full-time to produce all necessities for everyone.
As additional stuff is devised to make up for the excess labor, inevitably more and more people are doing or producing things of less and less intrinsic value.
There must be a tendency for demand to soften, and become more vulerable to economic dislocations.
Bring on the Five-Hour Day!
written by Queen of Sheba, August 21, 2010 12:57
I've been saying for months that the problem in the marketplace is not policy inconsistency or uncertainty or taxes that are too high (although large corporations will always claim their taxes are too high), but demand - customers, clients, buyers. I've yelled at the idiots on teevee and argued with the wage-earning idiots in my neighborhood, some of whom are unemployed and facing foreclosure on their homes, and who still insist on blaming Obama and Democrats for their plight and railing against deficit spending. It's amazing.

Then I read this article and its comment thread. Good Lord at the ignorance! Reading the comments is like listening to 13-year-olds arguing about who is the worst homeroom teacher in their middle school. There is little thought, less understanding and ideology trumps all. If these commenters are representative of the voters in November, we're all doomed.
Dean Baker should be on Meet the Press
written by Scott Dunn, August 22, 2010 12:31
I know this is totally off-topic, but...

For the second week in a row, David Gregory has played the segment which featured Alan Greenspan stating his opinion that tax cuts do not pay for themselves, three weeks ago. Gregory has seized upon this point and demanded a response from Republican leaders who appear on his show.

Baker has been one of the few who have pointed to solid statistics that show that the return on investment from spending vs. tax cuts favors spending. Not just a little, but decidedly.

Dean, why aren't you on Meet the Press? Have they not called you yet? After seeing your lucid description of the lies perpetrated by the proponents of the bailout of the banks, and your very practical view of economics in "The Conservative Nanny State" I think that David Gregory would welcome your presence on the show.
What is the overlap between 'Republicans' and 'senior executives'?
written by grooft, August 23, 2010 7:59
I would guess that 100% of the 'senior executives' are Republican, which makes the presentation even more ironic or cluelessly 'balanced'.

The senior executives also wanted the Bush tax cuts extended and fewer regulations (but could not say why, exactly).

BTW, today we have South Dakota's representative race as the 'heartland values' on page 1 of the Post. The rural state with 800,000 people is the 'heartland'. Odd how the Post chooses what is 'mainstream'.
written by Dennis, August 23, 2010 1:03
The right often talks about how government does not creat jobs but businesses (especially small businesses) do. They forget (if they ever knew) that no business creates jobs without demand and government can create demand.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.