Uncertainty Does Not Explain Lack of Hiring

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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. 

hours-09-2012

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.