What's Strangling Job-Creation

Recessions were never fun, but we used to bounce back from them fairly quickly.  The phrase "bounce back" actually applied.  They were more like injuries in our youth: we could "walk them off."  Healing was natural, speedy, and expected. But now it seems like every minor injury sends us to the hospital; we take months to recover, and the doctors say we might not ever be the same.  Did we just get old, or did something more specific happen?

I recently wrote of the graph below.  Recessions as measured by the number of private-sector jobs have been generally "V"-shaped: jobs returned about as quickly as they were lost. I noted that in our current recovery, the "V" became very lopsided and that this was the slowest such recovery in our history.

Data source: St. Louis Fed/FRED, USPRIV series.

But let's separate those recessions: those through 1983 and those since 1990.

Do you see a rather stark difference?  Both charts are on the same scale, but the recessions on the left were truly "V"-shaped, while the recessions on the right look more like telephone wires strung between poles that are far apart.  We are taking longer and longer to recover from recessions.  In fact, it is not a sure thing that we will ever fully recover from this last one.

Below is a chart that shows how our "recovery time" has grown in recent years.  These are the number of months between the tops of the "Vs."

*Since we have not yet recovered, the recovery time for the current recession is based on the optimistic assumption that the current pace of recovery will continue.  It has already been 56 months, with 4.2 million more jobs to go.  There is no guarantee that the current pace will continue into 2015.

All private-sector job slumps prior to 1984 lasted 28 months or less.  After that, recovery times grew to 36 months, then 55 -- and now, perhaps, we will never recover.  What happened after 1983 that might have caused this difference in recovery times?

I provide below a history of jobs-related federal laws since 1983.

  • 1984: The Retirement Equity Act "amends the Employee Retirement Income Security Act by addressing women's rights not included in the original 1974 version of ERISA."
  • 1988: The Employee Polygraph Protection Act "prevents employers who are engaged in interstate commerce from using polygraph tests for workers either before or during employment."
  • 1988: The Worker Adjustment and Retraining Notification Act "protects workers by giving them advance notice of plant closings or mass layoffs."
  • 1990: Federal minimum wage rose from $3.35 to $3.80 per hour.
  • 1990: The Americans with Disabilities Act, "a civil rights measure, is passed to prohibit discriminatory practices on the basis of a disability. It sets guidelines for accessibility, opening premises previously unavailable to persons of diverse backgrounds, with the concept of reasonable accommodation. Disability, as the ADA defines it, includes visual, auditory and mobility deficits as well as mental, emotional and physical challenges."
  • 1991: Federal minimum wage rose to $4.25.
  • 1991: Civil Rights Act creates the "Glass Ceiling Commission ... to investigate the 'artificial barriers' that prevent qualified women and minorities from moving into more senior positions."
  • 1993: The Family and Medical Leave Act "guarantees that a job will be there upon return [from the birth of a child], for new foster parents, caretakers of injured or ill relatives, workers with personal health problems, and others."
  • 1996: Federal minimum wage rose to $4.75.
  • 1996: The "No Sweat" initiative, "a multifaceted movement to end sweatshops in the garment industry."
  • 1997: Federal minimum wage rose to $5.15.
  • 1998: The Workforce Investment Act "to create a means for businesses to participate in workforce training and career pathways programs. It replaces the Job Training Partnership Act of 1982, providing funding for local, statewide and national on-the-job training."
  • 2000: The Office of Disability Employment Policy is launched "[t]o reinforce the Americans with Disabilities Act[.] ... Its goal is to remove the limits on employment opportunities that people with disabilities face. The agency provides information on required accommodations to employers, and advises people with disabilities about their rights."
  • 2003: The Employee Benefits Security Administration "focuses on protecting the benefits of workers and their families by regulating retirement, health care, and other benefit plans. It has the authority to administer and enforce provisions of laws including the Employee Retirement Income Security Act (ERISA); the Consolidated Omnibus Budget Reconciliation Act (COBRA); The Health Insurance Portability and Accountability Act of 1996 (HIPAA); and the Patient Protection and Affordable Care Act (ACA)."
  • 2006: The Mine Improvement and New Emergency Response (MINER) Act "includes a number of safety provisions to modify the Mine Safety and Health Act of 1977, including requiring mines to provide more updated accident contingency plans and to train miners to survive emergency situations."
  • 2007: Federal minimum wage rose to $5.85.
  • 2008: Federal minimum wage rose to $6.55.
  • 2009: Federal minimum wage rose to $7.25.
  • 2009: The Lily Ledbetter Fair Pay Act "reverses a Supreme Court decision that held that people subject to pay discrimination have only 180 days from the date the employer first decides to pay them less to file a discrimination claim."
  • 2010: The Patient Protection and Affordable Care Act "with the goal of decreasing the number of uninsured citizens and reducing health care costs via tax credits, subsidies, incentives and fees for employers and uninsured individuals. Under PPACA, insurance companies are required to cover all applicants at the same rate of coverage regardless of pre-existing conditions or gender."

Do you think maybe some of the above laws affected the private sector's ability to produce jobs and recover from setbacks?

Pretend you have a genuinely good idea for a business, but you need employees to make it happen.

  • Can you afford the minimum wage for them, in addition to the required payments for Social Security, Medicare, and unemployment insurance?
  • Can you now also afford their health insurance, with coverage as mandated by government?  Or if not, can you afford the fine for not providing it?
  • Could you afford to be sued by any one of those employees for perceived offense due to gender, race, ethnicity, age, disability, or sexual orientation?
  • Are you sure you are providing "reasonable accommodation" for any employees or customers that might be disabled in any way, including "mental and emotional challenges"?
  • How do you plan to decide whom you should hire, given you can't use IQ tests, or polygraphs, or talk to previous employers?
  • If you think you can handle all the existing labor laws, would you also be ready for the next one, which likely will come in the next year or two?  Can you predict how all the rules and regulations will be interpreted and applied?

Are you still sure you want to start that business? If you're already in business, how ready are you to do more hiring?  Whether your business is making widgets or providing care to people in need, how did you plan to split your time between that core business purpose and complying with all these labor rules and regulations?

Advocates of a free market were generally against these laws.  And they were painted as mean, anti-worker, pro-corporation, biased against women and the disabled, etc.  On the other hand, advocates for these laws were the saints; they simply wanted to be nice to people -- to women, families, the disabled, the "emotionally challenged," etc.

The potential drawbacks of these laws were largely ignored.  The world's greatest economy would simply absorb the costs and move forward, just as it always did.  The pro-government saints won out over the pro-freedom meanies.

Death by a thousand cuts is still death.  The last bullet in the above list is ObamaCare.  To switch metaphors, ObamaCare might have been the last straw on the camel's back.  Did we finally kill the Golden Goose?

You youngsters living with Mom and Dad and all you people who have lost your jobs and not found a new one, take comfort in knowing that if you did have an employer, he would have provided all kinds of nice things.  Well-intended people made sure of that.  And they think you should thank them for that.  And in the meantime, let's raise taxes on those who already provide jobs.

Randall Hoven can be followed on Twitter.  His bio and other writings can be found at randallhoven.com.

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