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Uncertainty Does Not Explain Lack of Hiring

Saturday, 08 September 2012 07:46

The Washington Post's article on the August jobs report included an assertion by Bernard Bamouhl, the chief global economist at the Economic Outlook Group, that:

"companies find it hard to justify hiring more people because the economic outlook is so unclear."

To use a technical economic term, this claim is wrong. We can see this by looking at average weekly hours. If companies would otherwise be hiring people, but are restrained by uncertainty, then they would be working their current workforce more hours.

More hours and more workers are alternative ways to fill demand for labor. The former implies no real risk to a company. If they raise average hours worked by one or two hours a week this month, and then demand conditions change, there is little problem with lowering hours back to their prior level next month.

If Bamouhl's claim that uncertainty about the future is holding back hiring then average weekly hours would be increasing. That's not what the Bureau of Labor Statistics tells us. 


Source: Bureau of Labor Statistics.

Since average weekly hours have not risen we know that uncertainty is not preventing hiring, but rather a lack of demand. 


Comments (6)Add Comment
The Mysterious Certainty of Uncertainty: Opposites Attract
written by Last Mover, September 08, 2012 8:18
Exactly. Businesses are certain there is not sufficient sales (demand) to justify hiring more employees at the margin. Yet MSM has no problem seeking out austerians who interpret that certainty as uncertainty.
What did you expect?
written by John Q, September 08, 2012 8:00
It's just Fox on 15th repeating Republican talking points.
written by dick c, September 09, 2012 9:43
In any other profession a person would be shut down or sued for malpractice for pushing something so obviously false.

I can't be a much bigger moron than this guy, how do I get to be a chief global economist at the Economic Outlook Group?
written by ltr, September 09, 2012 11:46
I cannot find the Washington Post article mentioned here. The link is not working.
[.PDF] - A Lackluster Jobs Report: We're Surprised So Many Were Surprised, Bernard Baumohl
written by Bernard Baumohl, September 09, 2012 7:48
What specifically troubles corporate leaders?
• There is great uncertainty over tax policy, which can affect both the cost
of capital and return on invested capital!
• There is uncertainty about future government spending and regulatory
• There is uncertainty who will win the presidential election and the
implications that carries, since Romney and Obama are pushing two
radically different domestic agendas.
• There are questions whether the European financial crisis will get worse,
or has turned the corner.
• There is uncertainty about China and whether its economy will weaken
more than previously thought, and the ramifications that has for the rest of
• There is uncertainty about the path of oil prices should war erupt with


Bottom line:

So long as the economy is being held hostage to so many domestic
uncertainties and geopolitical threats (the fiscal cliff, presidential elections,
China, and the Middle East) it will be hard for employers to justify ramping
up employment. Having said that, we do believe that after November 6,
the decision making process on capital spending and hiring will improve,
and with that the economy too. In fact, we have lifted our forecast for US
growth in 2013 to 3.2% (from 2.7%), with the unemployment rate falling
back to 7.2% by the end of next year.

Whither Productivity ?
written by commentator, September 10, 2012 2:01
...uncertainty is not preventing hiring, but rather a lack of demand.

Productivity has been creeping up.

Postulating a lack of demand without source is expected of commentators (that would be me), but reflects poorly on authors: Yes, I'm looking at you Dean Baker.

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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.