By James McCusker
When the question is why businesses aren’t hiring, the standard answer has become, “Uncertainty about Obamacare.”
There is no doubt that Obamacare is a looming presence and a formidable force for uncertainty. As if to worsen the uncertainty, its deadlines are vaporizing and key elements of the program have been crumpled by collisions with reality.
Indicting it for causing the slow pace of hiring, though, stretches beyond the available evidence. There are a lot of other factors involved in hiring decisions.
The slow-grow jobs issue preceded Obamacare and will continue after it is installed or simply collapses of its own weight like some unfortunate CGI’d Cretaceous creature in a sci-fi movie. The employment problems that have plagued our economy since the financial collapse of 2007-8 are the result of structural issues on the business (demand) side interacting with the structural issues on the labor market (supply) side.
These structural issues explain how businesses have job openings they cannot fill while there are, literally, millions of jobless workers seeking employment. They also explain why job growth has been so slow.
To start with, there are two basic types of companies: the ones who view their workers as their source of strength; and the ones who view their workers as costs. Generally speaking, these are not simply attitudes but imperfect reflections of economic realities. Technology-driven businesses, for example, live on innovation and are dependent on their skilled workers. It isn’t surprising, then, that in the face of the economy’s sluggish recovery, hiring at these companies remains competitive and their workers continue to enjoy healthy increases in wages and benefits.
Many, but not all, businesses that depend on customer contact for their success also tend to value their workers. The value, and the perspective on workers as either strength or cost, depends there mostly on two factors: the productivity and amount of customer contact; and characteristics of the applicable labor market.
If workers are easily replaceable, have minimal customer contact, and the job-training is brief, many businesses view them as costs. This is especially true in businesses where their service and product are near-commodities and therefore very price competitive.
The two types of businesses have very different hiring patterns. The ones hiring skilled workers generally have higher profit margins. This, and the nature of innovative businesses, means that they not only fill existing jobs but also hire people to develop products that don’t yet exist, anticipating demand.
Anticipatory hiring, underwritten by investment, is rare on the market for less-skilled labor. Unless it involves a new store (or hotel, etc.) most of the major employers in retail, lodging, restaurants, and similar industries hire to meet existing demand only.
The lower-skilled portion of the labor market, then, follows growth in the economy; it doesn’t anticipate it and cannot create it. And while the higher-skilled portion can stimulate economic growth, its impact on our economy has been blunted by its relatively smaller size and by an overall scarcity of skilled workers.
The scarcity of skilled workers is a story in its own right. The economic forces that have disconnected effort and reward, and the societal forces that have devalued the hard work involved in mastering coursework in science, technology, engineering, and math have reshaped our labor force. This has left it more vulnerable to the after-effects of economic recession.
We can blame pre-recession sloppy management for some of the lethargic job growth in the financial industry. After the crash and recession hit, banks and financial firms were forced to make deep cuts in their labor force. What they discovered when the shock of the initial implosion was over and the recovery began was that they didn’t really need all those people.
Banking industry consolidation has undermined job growth there, and other firms in the financial industry have been a lot more cautious about expanding their workforce. It’s not clear that this will produce better-managed companies in the long run but it has limited job growth and aggravated the skewed distribution of incomes in the industry—further reducing labor’s share.
Obamacare is being blamed for the increase in part-time jobs at the expense of full-time work, but there, too, other economic factors are also in play. In many businesses, especially those involving lower skill levels, part-time workers are simply a lot easier to allocate and manage efficiently. And the recession-driven numbers of applicants makes part-time work more acceptable and positions easy to fill.
The are a lot of things wrong with Obamacare. Its cost savings have been wildly miscalculated and ultimately it is likely to have a negative impact on both health care and our economy. But it isn’t to blame for the slow job growth in this lethargic recovery. That’s our own doing.
James McCusker is a Bothell economist, educator and consultant. He also writes a monthly column for the Herald Business Journal.