The monthly jobs report has become akin to stepping onto the bathroom scale on New Year's Day. We know what we have and haven't eaten over the previous month, how our clothes fit and how we feel, but many of us still wince when the digits appear. Similarly, it's no surprise that overall unemployment for September remained steady at 9.6%. The U.S. economy will rebound as full-time employment increases and consumer spending follows – big yawn, I know. But how shall we get there?
At the risk of being a bit overly simplistic we have two options: directly incent small, medium and large businesses to hire or wait for Adam Smith to wave his invisible hand toward the same end. The choice is not clear. Though amidst a welcome and rapid rise in anti government spending consciousness, I believe we're likely to, and should, do both.
Despite President Obama's claim late this morning that "private sector job growth is moving the economy in the right direction, but the government needs to explore ways to help state and local governments keep workers who provide vital services..." reported in The Christian Science Monitor, the lagging impact of recession induced lost tax revenue to state and local government is about to peak. In fact, today's WSJ's Ahead of The Tape reports "State and local governments have been cutting jobs all year. So far, losses haven't been drastic -- the sector has shed about 135,000 jobs since January. But there is more to come... Federal stimulus funds also helped to forestall layoffs. And those are now running out. Budget shortfalls for 2011 and 2012 are likely to reach $260 billion, which could translate to losses of roughly 900,000 jobs, according to the Center on Budget and Policy Priorities." All of which begs the question of whether to spend on bandaging government jobs vs. creating real hiring incentives that will inevitably reverse the tax shortfalls and result in re-hiring if needed.
And to make the matter of private sector hiring even more urgent, "Small businesses, known for jump-starting economies, aren't upholding their reputation" according to the WSJ Small Business section yesterday. That article goes on to report that "Only 8% of business owners plan to increase staff, says the National Federation of Independent Business's Optimism Index, released in September [and] By contrast, 31% of large firms plan to hire, according to the Business Roundtable CEO Economic Outlook Survey of leading U.S. companies, also released last month." And while "Many small and mid-sized firms are still laying off employees, employment data released Wednesday from payroll giant ADP Inc. and consultancy Macroeconomic Advisers show that firms with less than 500 employees shed 28,000 jobs in the last month..[and] by contrast, those with more than 500 employees shed 11,000."
Since sustained job growth in the private sector is essential to recovery and we're going to increasingly pay the cost of the long term unemployed one way or the other -- many of whom will soon become unemployable -- direct subsidies in the form of tax incentives for businesses to invest in human capital seems far more astute than spending on the back end to maintain government employment, messing with depreciation methods and calling it a tax break, or idiotic rebates to spike auto sales. Or to paraphrase from Bill Cinton's first campaign for President: It's about employment, stupid.