For over a year economists I respect claimed this economy has hit bottom and is slowly recovering. Yet long after the bottom is in we see unemployment anemic and even increasing. While a recovery in employment does lag the economic recovery there are some differences in this cycle that should be recognized.
- Higher minimum wages may not have affected employment during the boom but like any other higher price it will cause a decrease in consumption of jobs. Only now is the real cost of the higher minimum wage adding to the high unemployment.
- Generous unemployment benefits discourage job seekers. There is a longer term effect here as well: when someone has not worked for two years they become increasingly unemployable. I have stated before that I never had an employee asked to be laid off…. until this recession.
- We have accumulated onerous regulations for decades and this administration had added so many costly and uncertain costs that the small businesses have capitulated from exhaustion. I have seen many small businesses shut down and very few start up. It is the death of fresh entrepreneurial activity that is causing such a slow recovery. There is just too many barriers to entry such as tight credit, low collateral values, threats to wealth accumulation, and absurd regulations. A high level of regulations is an advantage to large businesses who have the administrative structure in place to comply. Unfortunately the job growth usually comes from the smaller businesses.
- For a half century we have depended on the Fed to cover for the reckless fiscal policies of Congress. This financial collapse has tapped out the ability of the fed to meet its dual mandate of stable money and low unemployment. Instead of fulfilling a single mission well (sound money) it is proving ineffective at both missions.
- While the tax cuts were extended, their future is still uncertain. Businesses do not make long term investments without knowing the future return. Today’s investments are tomorrow’s jobs.
- The continuous jawboning about the wealthy does not attract investment to this country from within or abroad. We have the most progressive tax structure and one of the highest corporate taxes in the G20, yet to this administration it is not enough.
- The health care bill alone is killing more jobs that even the most pessimist estimates. It is particularly harsh on small businesses where we usually see the biggest job growth at this time in the recovery cycle.
While economists can point to many recovery statistics that indicate that this recovery is following a similar path to previous recessions, it is foolish to ignore parameters that are making this one different. Persistently high unemployment is largely a direct result of poor policy decisions. It can be corrected by reversing them.