Many medium and large corporations are flush with cash. In spite of this, the hiring process is very sluggish. The upshot is that unemployment remains high. Hiring for federal government jobs is robust. But very little is happening in the private sector. Why?
Over the years, the cost of hiring an employee has slowly but steadily risen. It is more than just a salary. There is Social Security (FICA), Medicare (MICA), Unemployment Insurance, Workman's Comp, and now Obamacare. There are minimum wage rules, required sick days, overtime laws, union requirements, paid maternity leave, etc. By the same token, there are a legion of anti-discrimination laws that a hiring company must tip-toe around. God help the employer who happens to ask the wrong question to a potential employee. The result of all this is that in 2013 an employer must think long and hard about hiring even one more person. In Europe, it is even worse. The dark side is that for decades the unemployment rate in the Euro Zone has been about twice that of the US......but we are catching up.
The government answer to high unemployment has been to stimulate the economy by increasing their spending. Has this been effective? Yes and no. If we were in a deflationary period, there is empirical data that deficit spending does help prices to come back. This is important since deflation can be an economy killer. But if prices are stable or rising, the data reveals just the opposite. For example, Swedish economists Andreas Bergh and Magnus Henrekson measured the negative relationship between government spending and economic growth. They found that a 10% increase in government spending corresponds to a decrease in economic growth of between 0.5 and 1 percentage point (Journal Of Economic Surveys -- June 2011). By the same token, economists Timothy Conley and Bill Dupor in a detailed study of the American Recovery and Reinvestment Act found that indeed the stimulus did create or save 450,000 government jobs. However, up to 1 million private sector jobs where forestalled or destroyed. (http://web.econ.ohio-state.edu/dupor/arra10_may11.pdf) This is because of the detrimental tax and public debt effects on investment and confidence. These empirical findings go counter to Keynesian economic theory that says an increase in government spending will reduce unemployment. Since virtually every government on the planet practices Keynesian economics, these studies should get a lot of people's attention. But it probably won't since the pesky task of working with budgets has never been the favorite task of lawmakers.
Somehow, policymakers need to see the light, and make it less costly for employers to hire a full time employee, and also control excessive government spending.
