Job Skill Mismatch and Government-Caused Uncertainty

In a recent Washington Post column, Robert Samuelson attempted to explain the jobless recovery as a mismatch between the skills of the unemployed and the needs of the business community. His suggestion:

There is no instant cure for today’s job mismatch, but it might ease if America’s largest companies were a little bolder. Surely many of them — enjoying strong profits — could make a small gamble that, by providing more training for workers, they might actually do themselves and the country some good.

This implies that if the profit-swollen capitalists would just give labor a chance, things would improve.

What we really should ask is why companies are not willing to hire workers and train them for the jobs that are open, or why training companies don’t come into existence to offer workers new job skills?  What makes this recovery so different that people remain unemployed for so long?  Forty-five percent of those currently unemployed have been unemployed for twenty-seven weeks or longer. 

It is certainly plausible that the reason that unemployment has remained so high is that the federal government has created massive uncertainty about property rights and what the rules of game are.  Suppose that you owned  Al’s Hardware, with four stores, and were thinking of expanding by adding a new store and hiring six new workers. 

First, you will have no idea what your labor costs will be if you hire these workers.  The massive government involvement in the health insurance industry, the Affordable Care Act, gives the Secretary of Health and Human Services the power to decide which health care benefits are required to avoid paying a fine for each worker you hire.  More than a thousand firms have waivers from some of the requirements for the first few years.  It turns out that when then-Speaker Nancy Pelosi famously said, “We have to pass the bill so you can find out what’s in it,” she was wrong.  Even after passing the bill you don’t know what is in it.

Second, you don’t know what your electricity and other energy costs are going to be.  There was the threat of Cap and Trade legislation, and then when that failed the EPA announced it would regulate carbon dioxide emissions.   It currently is threatening rules that will significantly increase the costs of coal-fired power plants.   

Third, it is not clear whether you will be able to get financing for an expansion.  The massive Dodd-Frank bill to regulate the financial industry contains more than 90 provisions that require SEC regulation alone, according to the SEC web site, and “dozens of other provisions that give the SEC discretionary rule-making authority.”  It requires 87 studies and gives massive new authority to the Federal Reserve to regulate the industry.  How can the compliance officer at your small regional bank have confidence enough in what the rules will be to offer you a loan?

There is great uncertainty over what your taxes will be.  First, the Bush tax cuts were to expire, giving you a large tax increase if you are a moderately successful LLC.  Then Congress came up with a two year agreement, so you don’t know what will be happening to your taxes once your new building is constructed and your new store opens.

These are but some of the major uncertainties that the federal government has put in front of those entrepreneurs who will have thought about expanding employment.  Rather than calling on businesses to risk their operations by expanding hiring, we should reestablish constitutionally limited government and reestablish what Hayek called rule of law.  The market process would then create a match between those looking for work and the businesses providing new jobs.