Deficit spending fails to deliver; political stability would foster employer confidence

By Kate Martin

If the monthly unemployment reports were boxing rounds in a year and a half long match, the score would be close to Unemployment: 15, Government: 0. Unemployment remains high, despite repeated promises from government officials that different spending programs will create jobs.

With businesses hesitant to hire during uncertain economic times, economist Bruce Yandle looks at the best steps the government can take to foster job creation in the private sector in newly released research.

“Some steps could include providing adequate supplies of water and sewage treatment to support industry and municipal life, improving traffic control and transportation infrastructure to enhance mobility of people and goods, and protecting environmental quality so that locations are attractive to people,” said Yandle, a member of the Mercatus Center’s Financial Markets Working Group.

A stable economic environment gives private sector firms more confidence in hiring. “Job growth is aided by the government avoiding constant debate of major policy changes that increase business uncertainty,” he said.

Eliminating uncertainty is especially important for small businesses. Yandle’s research shows that firms with fewer than 50 workers typically produce some 36 percent of the new jobs, but smaller firms are more wary of increasing their workforce in times of recession.

“Managers of smaller firms know their employees well,” said Yandle. “Hiring a new worker brings a celebration, but firing a worker generates heartache. Adding just one new full-time hire when your toes can barely touch the bottom in a recession’s deep end is risky business.”

One of the sectors hardest hit by the recession was the construction industry, which recently saw spending fall to its lowest level in a decade. This industry, says Yandle, is where we see highly skilled workers, but workers who do not typically have the same level of educational attainment as other sectors.

Education level plays a significant role in an individual’s ability to find a job. Looking at data from the Bureau of Labor Statistics, Yandle found that in December 2010, when the nation’s unemployment rate stood at 9.4 percent, the unemployment rate among Americans 25 years or older with a bachelor’s degree or higher was just 4.8 percent. The jobless rate for the same population with a high school diploma was 9.8 percent. And those without a high school diploma faced a 15.3 percent unemployment rate.

Nevertheless, says Yandle, there are signs that our economy is improving. The Bureau of Labor Statistics data shows that the economy gained 728,000 jobs in the second quarter of 2010. We have a very dynamic economy, said Yandle, and with manufacturing pulling the engine of recovery, we’re seeing improvement in the numbers.

Kate Martin is a media relations associate at the Mercatus Center at George Mason University.