The U.S. economy may be growing again, albeit slowly. But employment rolls continue to languish. This frustrating state of affairs has left many Americans perplexed. Where did all the jobs go? Some are blaming the tech industry, which was among the biggest drivers of job creation during the booming 1990s. While most tech firms are still profitable, they don't seem to be hiring. What gives?
The New York Times's Catherine Rampell took a stab at this question in a recent article. She believes outsourcing is one reason tech firms aren't hiring in the U.S. and mourned the decline in U.S. data processing jobs. It's not because there is less data to process. There's more than ever. But the real culprit is progress, not outsourcing.
Innovative new technologies have enabled firms to automate many previously tedious tasks, obviating the need to pay costly employees. Shall we ban the use of computers for data processing, then? Imagine how much information flows through today's global economy in an average day. Computers handle most of this load. They take millions of jobs away from willing workers.
Or do they? Especially in these uncertain economic times, companies are dead-set on doing more with less. This often involves cutting workers who aren't productive enough to offset their wages. Sounds like bad news. But it's actually crucial to job creation. That's because in the long run, automation frees up resources — and employees — for new opportunities. Restoring lost data processing jobs, on the other hand, would be doing less with more. That's the opposite of progress.
Neither outsourcing nor progress has much affect on the number of jobs. They only affect the types of jobs. In the long run, that means better jobs. A century ago, most American workers had back-breaking jobs on farms or in factories. Today, most of them work in comparably comfortable office environments in jobs that increasingly demand brains, not brawn. This is one reason why Americans today are significantly smarter, healthier, and wealthier than prior generations.
Job creators in America still face serious obstacles. Hiring new employees means jumping through countless regulatory hoops, from employee benefit mandates to IRS reporting requirements to payroll taxes. According to a 2005 study by economist W. Mark Crain, compliance costs average $5,282 per employee at large companies. Small businesses pay $7,647 per employee.
Some of those resources could have been spent hiring more employees. High regulatory costs also cause firms to outsource more jobs than they would otherwise. Over-regulation causes unemployment.
What can Congress do? A number of reforms would pave the way for increased job creation, including deregulating the economy and reducing regulatory uncertainty. The Code of Federal Regulations is already over 157,000 pages long. Many of those pages should be reformed or scrapped entirely.
New regulations are coming down the pipeline so quickly that companies can't accurately plan for the future. When the rules of the game are always changing, firms tend to be wary about making long-term investments. Roughly ten new regulations come into effect every day, 365 days a year. It's hard to keep up with what's allowed and what isn't.
The Dodd-Frank financial regulation bill alone contains at least 243 new regulations. Lobbyists are still scrambling to make the regulations favorable to their clients. Their cumulative effect is to make banking and investing more difficult. That makes it harder for small and growing businesses to raise the capital they need to create jobs. Repealing Dodd-Frank should be one of Congress' highest job creation priorities.
Politicians can't create jobs, no matter how hard they try. They can only shuffle around resources that others create. But they can help to foster better conditions for wealth and job creation. Regulations cost businesses and consumers $1.17 trillion last year alone. Congress should roll them back. Some companies fear potential clampdowns on their businesses. Congress should leave them alone. Some failing businesses are eating up resources that could be better used elsewhere. Congress should stop bailing them out.
In short: liberate to stimulate.
George W. Bush said in campaign speeches that "when people are hurting, government has got to move." As usual, he had it backwards. People are hurting. That's why government has got to move out. Millions of jobs depend on it.