License to Kill: Top Job Killers in America

October 8, 2010

Our politicians all seem to agree on at least one thing: There will be no recovery unless America gets back to work. But that’s often where the agreement ends.  Once you move on to discuss how to get America back to work, opinions begin to diverge.

In general, the worst thing for job creation is a poor entrepreneurial climate.  Such a climate is brought on by the large fiscal debt, unpredictable health care costs, and a generally anti-business and pro-regulation approach by government. In the run-up to the midterm elections, all of us should be thinking about “climate change”—about the best ways to create jobs in our nation.  We’ll hear lots of talk about recovery and stimulus, about fairness and equity, the future and change.  As we listen to the rhetoric, remember the reality. 

These are the Top job killers in America.

1. Uncertainty and business

2. Uncertainty and the consumer

3. High corporate taxes

4. Unhealthy health insurance costs

5. The threat of unionization

6. Inability to hire and fire

7. Trade restrictions

8. Credit

9. Increasing unemployment insurance

 

1.      Uncertainty and business: What you don’t know can (and does) hurt you.  Businesses plan around rules.  And they are unlikely to invest if they can’t be reasonably sure about what the rules will be.  When things are uncertain, businesses hold back cash to protect themselves—and this kills jobs. As my colleague Allan Meltzer has demonstrated, “High uncertainty is the enemy of investment and growth.” 

2.      Uncertainty and the consumer: Uncertainty isn’t just bad for companies—it’s bad for consumers, too. If I think government policy may provoke a double dip in the economy and my job is on the line, there’s no way I’m going out to buy a new car.  For that matter, even the possibility of a huge gas tax would make me less likely to make a car purchase decision. All this kills jobs.

3.      High corporate taxes Americans are shocked to learn that we have some of the highest corporate taxes in the world.  In fact, Japan is the only developed country with a higher corporate tax rate than the United States. Whether we like it or not, the corporate tax is a tax on jobs. It makes it more expensive for firms to function, which costs jobs. But even worse, it drives companies to find more tax-friendly environments in other countries.

4.      Unhealthy health insurance costs The high health insurance costs associated with hiring new workers hits small businesses particularly hard, according to AEI economist Aparna Mathur. Government health mandates specify exactly what kinds of coverage have to be included in insurance policies.  This makes increasing headcount a costly exercise, and so kills jobs. One major CEO told me recently that his hiring was stunted by the new mandate to cover workers’ kids up to age 26.

5.      The threat of unionization In a global economy, it’s fairly simple for a lot of firms to avoid unionization: They can move overseas and take their jobs with them. Policies that favor unions make this decision more attractive.

6.      Inability to hire and fire In Europe, government regulations and employment protection laws reduce the flexibility of firms to downsize their operations when they need to.  They also discourage those same firms from upsizing their operations when they would otherwise do so, and are thus a job killer. This is why Spain has a 20% unemployment rate (and about 40% among workers under 25). Restrictions on firing are a job killer.

7.      Trade restrictions Free trade favors consumers everywhere, and benefits workers in industries where America has a comparative advantage. Tariffs and other barriers benefit industries that are already in decline. This is why economists always tell us that over the long run, trade barriers slow modernization are a net job killer.

8.      Credit Poor credit access especially hurts new and young firms that are eager to expand their operations.  The new Consumer Financial Protection Agency could make matters worse by expanding burdensome regulation of these financial markets, killing jobs in the process.

9.      Increasing unemployment insurance Everyone wants to ease the burden on the unemployed, so it is tempting to extend unemployment insurance, as our government has recently—today, to as much as 73 additional weeks. Unfortunately, this kills jobs and economic recovery. Harvard economist Robert Barro estimates that if unemployment insurance had not been expanded, the unemployment rate would now be 6.8% rather than 9.5%.