While the U.S. economy added 244,000 net new jobs last month, the unemployment rate increased from 8.8 percent to 9 percent as discouraged workers started looking for jobs again, and the total number of unemployed remains at an all-time high of 13.7 million, according to the Bureau of Labor Statistics. The bright spot, of course, is manufacturing. U.S. factories, especially in the low-cost Sunbelt, are starting to hum again. As wages in China increase, U.S. factories should continue to gain. Still, we have a long way to go. Millions of U.S. jobs have disappeared in recent years, and Washington's best efforts to put Americans back to work seem to have had little impact.
The reason? Perhaps many, in Washington and elsewhere, don't really understand why companies hire. Do businesses hire because Washington will spend taxpayer dollars to underwrite basic research, green energy, high-speed rail, and other politically popular programs? Certainly, some do: those that directly benefit from such spending. The vast majority of U.S. companies base the decision to hire new employees on the need to fill shortages of critical skills, gain a talent advantage over competitors, or ramp up production to meet customer demand.
For most businesses, the cost of new employees is a concrete line item. Companies don't hire for altruistic or patriotic reasons. They hire for economic reasons: The cost of each new employee, according to the company's calculations, must be exceeded by the additional revenue the employee will help generate. We call this profit.
Most major U.S. corporations have been reporting strong profits, but their hiring has lagged. So what's the problem?
Economic historian Robert Higgs, a fellow with the Independent Institute in California, attributes America's anemic job performance to uncertainty: not knowing what steps the government will take to get its fiscal house in order and what form the hundreds of still-to-be-written rules and regulations implementing various new laws will take. If it survives legal challenges, the new health-care law, for example, will affect virtually every employer in the country. The regulations implementing the law are still a work in progress. Then, of course, there will be a battle over how the regulations are interpreted. It all adds up to great uncertainty.
And this, as much as anything else, is holding the economy back.
The government's main challenge, then, isn't creating jobs, but clearing the fog, restoring confidence, and inspiring us to meet head-on the challenges of a changing global marketplace. Until this happens, many executives will continue to delay expansion and hiring decisions. And investors will sit on the sidelines, too.
Companies alone are sitting on an estimated $2 trillion in idle capital. They're making record profits, in some cases, but they're not spending or hiring at record levels; they're just waiting for the fog to lift.
Many of those that are hiring are doing so overseas. A major fast-food chain, for example, announced early this year that in 2011, it expects to add 500 to 600 new stores in China and another 700-plus in other developing markets. In the U.S. and Europe, the company is planning to open fewer than 200 new stores. Granted, these stores will not produce the kind of highly desirable, high-paying, innovative jobs U.S. government leaders would like to see, but that's not how the global economy works. In the world of globality, politicians don't get to choose who hires how many of what kinds of employees in which locations: Executives make these decisions based on information derived from the marketplace. Besides, if you're an unemployed teenager, wouldn't a job at a new fast-food franchise be attractive?
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