America’s Job Engine is Broken!

"Government stimulus applied to a broken private sector can no more spur job creation than can a jockey's whip applied to a race horse with a broken leg. If you ever expect the horse to run again, fix the leg first."

America's job engine is broken and we have only ourselves to blame. We the people have allowed our elected leaders to heap an ever-expanding array of non-business related costs on our private sector economy year after year ever since President Franklin Roosevelt signed Social Security into law in 1935.

After the ravages of World War II, when the manufacturing capabilities of the rest of the world lay in ruin, the United States transformed its relatively unscathed and vastly expanded wartime production capacity into the world’s sole manufacturing super power. Competing for scarce labor and persuaded by the demands of organized labor, American manufacturing successfully absorbed the incremental costs of new employee benefits such as healthcare and pensions.


As America prospered in the 50's and 60's, she had the luxury to reflect on her historic social injustices and the economic imbalances often attributed to capitalism. During the 1960s, a revitalized Social-Progressive movement returned to power and instituted additional programs that applied their vision of social justice through various employer regulations and wealth redistribution techniques. Most notable of these programs were Medicare (health care for seniors) and Medicaid (health care for the poor). Proponents of these programs, like their predecessors, successfully convinced a naïve public that much of the costs of these programs would be borne by "business" and "your employer; not by you." Again, since America was still the world’s production giant, the increased costs did not materially effect profits and America continued to grow. 

When globalization began rolling out in earnest some forty years ago, the imbalance between the U.S. production costs and those of our foreign competitors was regarded as little more than a nuisance. However, over the last couple of decades that nuisance has not just cost America a handful of manufacturing jobs but the complete loss of our most profitable industries and our best paying jobs. Some of the lost industries that America once dominated include steel, energy, plastics, electronics, white goods, brown goods, computers, automobiles and apparel.

With unemployment in excess of 8% for almost four years, both political parties claim that their primary economic objective is to help the private sector job market. Unfortunately, so far the crux of their proposals has been based on short-term government stimulus programs. Both parties have failed to recognize the fundamental, long-term problems that confront our job market.

The Democrats' solution is to increase taxes and government spending. Their theory assumes that increased government spending would increase the demand for private sector goods and stimulate the economy. This, they believe, would help the private sector rebound.

The Republican solution would lower taxes and reduce government spending. By allowing individuals and businesses to keep more of their money, Republicans assume that the private sector would spend more of their money on the things they need. This, Republicans believe, would help the private sector rebound.

Both approaches have been tried several times over the last dozen years or so with little evidence that either approach works, yet both parties persist in promoting their respective lackluster policies as the Holy Grail of job creation.

The time has come for both parties to recognize that Government stimulus applied to a broken private sector can no more spur job creation than can a jockey's whip applied to a race horse with a broken leg. If you ever expect the horse to run again, fix the leg first.

To make my point, allow me to present an absurd example just to establish a baseline for discussion.

Assume hypothetically, that in order to help cover the projected shortfalls in Social Security and Medicare, Congress passes a new law dubbed the “New Hire Tax”. The new tax is paid by the hiring business and is equal to the new hire’s first year salary. In essence, doubling the cost for a business to hire a new U.S. based employee. How eager do you think employers would be to hire under those terms?

The purpose of my absurd example is to demonstrate how easy it is to concoct scenarios that reduce the incentives for the private sector to create jobs. It’s so easy in fact that our government has been concocting these types of policies for decades. Instead of our government trying to “stimulate” the economy with short-term gimmicks, they should identify and permanently eliminate those things that impede U.S. based private sector hiring.

Allow me to propose a slightly less but nonetheless still absurd example.

Assume that Congress passes a new law they call “The Business Paid Safety-Net Tax.” The tax mandates that businesses pay a 30% premium on top of every employee’s wages to pay for our national safety net.  Such a tax would not only reduce new hires, it would force many businesses to cut their existing U.S. labor force. As American workers struggle to compete for jobs in this global economy, what are the chances that Americans would support such a law?

Well, apparently most Americans already do support such laws.

• The business paid portions of Social Security, Medicare and other non-job related payroll taxes amount to a 12% premium on U.S. based jobs.

• Pensions and 401K type retirement plans paid by employers add another 6% to the cost of U.S. based employees. 

• Before accounting for the added costs of the PPACA (Obama care), Health care premiums paid by U.S. employers add another 12% to the average cost of every American job.

The above costs amount to a 30% premium on every U.S. based job and unfortunately only represent the tip of our tax and regulation iceberg.

Beginning with Social Security, every burden that has been placed on our jobs has been placed there by the very people we elected to represent our interests in our government. These job-funded safety net programs were enacted with the best of intentions. But, as the saying goes, “The road to Hell is paved with good intentions”.

Our elected representatives, led by our presidents, created these private sector job roadblocks without consideration for the long-term damage to our jobs. To be fair, before globalization, the problems were not material. However, globalization is the new world order.  One principle that the electorate should demand Congress adopt is that it is almost never in any American’s best interest to add non-job related costs to our private sector jobs. There is always a better way to pay for the programs we deem we need.

In addition to endangering our jobs by increasing U.S. based labor costs to pay for our safety net, lawmakers have created several other regulatory restrictions on or threats against private sector job creation incentives.

Regulation Uncertainty:
Excessive uncertainty is devastating to a free market, private capital based system like ours. Uncertainty is risk and decision makers loath any risk they cannot predict, manage or mitigate. Excessive risk of uncertainty paralyzes decision makers and forces them to retrench. They will wait until there is a clearer direction and will hope for a more favorable business climate. Consider the huge amount of private sector risk associated with the unknown regulatory direction of some of our nations most important business policy arenas.

·         National Health Care Policy:
The Supreme Court has ruled that Obama Care is constitutional. Unfortunately, the incremental health care cost estimates are hurting hiring - not helping it . The Secretary of HHS has until 2014 to finalize many of the regulations. When will business be able to estimate the impact of those regulations on their costs?

·         Financial and Banking Regulations:
When will the regulators finalize the Dodd-Frank regulations and what will they mean to our private sector? When will the banks start lending again to small businesses?

·         Tax Policy:
Both parties agree our current tax policy is broken and we desperately need a new one. Will we get a new tax policy and if so, how will it affect the private sector and private sector jobs? What will happen with tax policy issues set to expire by the end of this year and known as “Taxmageddon”?

·         Energy Policy:
We still don’t have an energy policy and still rely too heavily on unstable and unfriendly governments. Energy is the lifeblood of our economy. Wide-ranging energy price and supply fluctuations outside our control add excessive risk, uncertainty and costs to key energy related and energy dependent industries. 

It is inexcusable for Congress and the Administration to allow any one of these major economic areas to languish without a cohesive direction let alone all four. Responsible leadership demands policies that provide our private sector with the certainty and confidence they need to make reasonable business forecasts.

Regulation Inefficiency

Most of the burdens Congress has imposed on our private sector jobs have been implemented with little or no attempt to minimize the compliance costs or other negative affects these regulations will have on U.S. based jobs.

Our government should work with stakeholders in each industry to evaluate how to optimize, replace or eliminate every job inhibiting regulation.

Regulation Inequality vs. foreign competitors

Many of our regulations place U.S. based producers and therefore U.S. based labor at a competitive disadvantage because our laws apply to U.S. based employers but not to foreign competitors. For example, regulations are often designed to protect workers or enhance work life quality. Others are intended to protect, restore or enhance our environment. Unfortunately, the regulatory bodies often fail to consider the affect their regulations will have on our private sector jobs in a global economy. Ultimately, these regulations help foreign enterprises compete in America and around the world. We lose our best jobs to foreign competitors who maintain poor workplace practices and poor environmental controls and thereby negate any anticipated protections to people or planet the legislation was intended to provide. Those nations with high work life and high environmental controls should reconsider free trade arrangements with nations that maintain much lower work life and environmental standards. It is illogical to impose environmental controls on a U.S. based producer but then import the same products from a foreign nation with much less environmental controls.

Our government should compare regulations that restrict a U.S. industry against the regulations of foreign competition and utilize U.S. trade policy and tariffs when necessary to level the playing field.

Americans should expect their government to recognize and then unite against regulations that hurt U.S. based jobs. Yet, instead, Americans must suffer through political gridlock as both parties promote their ineffective economic policies as they hope beyond reason for the brighter days promised after the next election. Regardless of which party wins the presidency or the legislature in our equally divided nation, unless both parties and most Americans can agree to fix our economic racehorse’s broken leg, we will continue to wonder why our economy is not producing good paying private sector jobs.

Americans can have a fair, efficient and affordable safety net. American labor needs and deserves strong workplace safety regulations. Every successive American generation deserves environmental controls that bequeath to them a planet that is at least as safe and pristine as what was left to us. We can have all these benefits but only if we stop trying to do so at the expense of our job engine.

To learn how to restore our private sector job engine and our economy while we simultaneously improve our safety net, please read our position paper entitled Jobs and the Job Burden.

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