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Home Publications Op-Eds & Columns Regulation Is the Cause of Unemployment: Badge of Ignorance

Regulation Is the Cause of Unemployment: Badge of Ignorance

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Dean Baker
Al Jazeera English, October 21, 2011

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Politicians pushing right-wing positions in public debate now operate with the assumption that they can get away with saying anything without getting serious scrutiny from the media. That is why right-wing politicians repeatedly blame government regulation for the failure of the economy to generate jobs. Even though there is no truth whatsoever to the claim, right-wing politicians know that the media will treat their nonsense respectfully in news coverage.

If political reporters did their job, they would make an effort to determine the validity of the regulation-killing-jobs story and expose the politicians making the claim as either ignorant or dishonest, just as if a politician were going around claiming that September 11 was an inside job. However, today’s reporters are either too lazy or incompetent to do their homework.  What follows is a bit of a how-to manual to make reporters’ jobs easier.

The first step in assessing the right-wingers’ claim about regulation killing jobs is to figure out what it is. The argument is usually that companies have enough demand for labor that they would be hiring now, but because of existing or expected regulations, such as President Obama’s health care plan that mostly takes effect in January of 2014, they are declining to hire more workers.

Governor Romney was kind enough to spell this argument out explicitly in the presidential debate on the economy. He told the audience that businesses have to look two or three years ahead when they make hiring decisions, not just a few months.

With this in mind, there are some clear implications of the regulations-cost-jobs story. First, we would expect that firms would be looking to increase hours per workers as an alternative to hiring. If employers can’t hire more workers due to regulations, then they would look to get more labor out of each of the workers that they already have.

Second, employers would hire temporary workers as an alternative to hiring permanent employees. Temporary workers can be easily dismissed if regulations make it unprofitable to keep employees on staff.

Third, the companies that are most affected by the regulations should see the largest impact on their hiring. If costly regulations are keeping companies from hiring, then we should see that expect that the companies that are most affected by these regulations will have the sharpest reduction in employment.

Fourth, industries with longer-term employment should have the greatest reduction in employment. It may make sense for a company to not hire today because of a regulation that only kicks in two years from now if they expect the new hires to still be with them in two years. However, if a company has frequent turnover, then hiring workers today will not increase their employment in two years, unless they decide to replace workers as they leave.

Finally, if regulations are preventing firms from hiring, then we would expect them to complain about regulation when asked in employer surveys.

If we look at the data, we find that none of these conditions hold. The length of the average workweek was 34.3 hours in September. This is up from 33.7 hours at the low-point of the downturn in 2009, but it is still down by 0.4 hours from its pre-recession peaks. With average workweeks still shorter than before the downturn, there is no evidence that employers are requiring each worker to put in longer hours as an alternative to hiring new workers.

The same story applies to temp workers. Temp employment is up by 550,000 from the trough of the downturn, but it is still down by almost 400,000 from its pre-recession peak. If employers are hesitant to hire because of regulations, they clearly are not turning to temps as alternative. They hired far more temp workers before the big bad Obama let the regulators run wild.

The third point is that we should see more of an impact on hiring in the firms that are most affected by the regulation. The right’s biggest villain here is Obamacare. This would have the greatest impact on hiring at mid-size firms. There is little in the legislation that affects firms of less than 50 and most of the biggest firms already provide care that exceeds what is required under the bill. So, we should see the largest falloff in hiring in firms that exceed the 50-employee limit but don’t already provide health care.

In fact it is impossible to find any clear pattern in hiring by firm size. In 2010, hiring by firms that employ 50-100 workers was down by 14.5 percent from pre-recession levels, while hiring by firms that employ 100-250 workers was down by 13.3 percent. By comparison, hiring by the largest firms (over 1,000 workers) was down by only 11.4 percent, but hiring by firms that employ 10-19 workers was down by 15.8 percent.

There is a similar story when we look at industry groups. Manufacturing and health care, where industries workers often hold jobs for long periods of time, are both adding jobs more rapidly than before the downturn. By contrast, restaurants, where turnover is frequent, are adding jobs at just over half of their pre-recession pace.

Finally, employers themselves don’t list regulation as major factor when asked in surveys. The National Federation of Independent Businesses, an association of small businesses, has fielded a survey for close to three decades that asks its members what are the biggest obstacles they face. Only around 14 percent list regulation, not much different than in the years before President Obama was elected.

In short, there is no evidence that is consistent with the regulation-impeding-job-growth story. When politicians repeat this line, they are just making things up and reporters should call them on it.


Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of The End of Loser Liberalism: Making Markets Progressive. He also has a blog, "Beat the Press," where he discusses the media's coverage of economic issues.

 

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