Shrinking wages and slow job creation

Moderated by Rick Badie
Today, we address economic pressure points that can stall consumer spending and job creation. A small-business advocate writes about the slowdown in hiring by Georgia businesses and why many are reluctant to add workers. Meanwhile, an economic forecaster says the Great Recession’s aftermath continues to constrain job growth and worker wages.

Wary business owners

By Kyle Jackson

Officially, the Great Recession lasted 18 months and ended four years ago, but we still haven’t gotten back to where we were before things went south.

One sign of that is the unemployment rate. The U.S. average was 7.4 percent in July — better than it was at the height of the recession, but well above the 4.4 percent jobless rate we had before the downturn. Things are worse in Georgia. Our seasonally adjusted unemployment rate for August was 8.8 percent.

Usually, small business plays a big role getting people back to work. It represents 99.7 percent of all employers and employs nearly half of the private-sector workforce, according to the latest numbers from the Small Business Administration.

But small business isn’t hiring.

Recently, the National Federation of Independent Business released the results of its July Small Business Economic Trends survey. It said small-business job growth is flat as a pancake. The survey found that:

• More respondents still think general business conditions will be worse than better in six months.

• Only 9 percent think it’s a good time to expand.

• Owners rank taxes and government “red tape” as the most important problems facing small businesses.

You’re not going to buy a new delivery truck if sales are down. You’re not going to hire if you don’t think you’ll have money to pay the new hires.

Look at things from a business owner’s perspective: You’re the boss. You sign the checks. You invested your life’s savings to start the business, and you’re on the hook if things don’t work out.

You have members of Congress who want to raise the personal income tax. What a lot of people don’t realize is that a majority of small employers are incorporated as S corporations. They pay their business taxes at the appropriate personal income rate.

You’re not going to invest in your business if you don’t know what’s coming down the pike.

Then you have the Affordable Care Act. It includes a provision called the health insurance tax, or HIT. It’s a tax on insurers, but the Congressional Budget Office says the insurance companies will simply jack up premiums rather than absorb additional cost.

Self-insured employers will be exempt from the HIT. That means the HIT is aimed squarely at small businesses like yours.

Then there’s a tidal wave of new rules and regulations. President Barack Obama’s most recent Unified Agenda shows 3,500 regulations in the pipeline; 700 will affect small businesses to one degree or another.

You’re not going to buy a new or used car if you think there’s a chance you’ll get laid off soon. Small-business owners in Georgia and elsewhere look at things the same way.

If Washington is serious about getting the economy back on track, it will stop threatening and cajoling small business with higher taxes, increased labor costs and excessive regulations. Simply put, Washington needs to get out of the way so Main Street can create jobs.

Kyle Jackson is Georgia state director for the National Federation of Independent Business.

Wage gains remain flat

By Patrick Newport

The U.S. labor market has been steadily improving since turning around in March 2010. The economy is adding nearly 200,000 private-sector jobs each month. Initial claims for unemployment insurance recently fell to a five-year low, and the unemployment rate dropped from 10.0 percent in late 2009 to 7.4 percent today.

But job growth remains too slow. The unemployment rate has fallen for good reasons (more jobs) and bad (people leaving the labor force). Other measures indicate the job market is still in sad shape.

Unsurprisingly, real wage gains have been minimal in recent years. According to the Bureau of Labor Statistics, the real hourly wage has hardly moved since early 2007. Behind this flat trend are more troubling ones: Earnings at the lower end of the income distribution have fallen, while earnings at the upper end have risen. The median-income worker has fallen further behind.

In “This Time Is Different: Eight Centuries of Financial Folly,” authors Carmen M. Reinhart and Kenneth Rogoff showed that a recession caused by a systemic financial crisis takes much longer to recover from than one caused by other sources. They cautioned in 2009 that the latest downturn, like those of 1873, 1892, 1907 and 1929 that also originated in the financial sector, would be long and protracted. Unfortunately, their projections have so far been on the mark.

Short of inflating the economy, the Federal Reserve did about as much as could be expected to jump-start the economy. What about fiscal policies? Princeton economist Paul Krugman has been saying for years that, for the economy to get back on track, public spending must step in and fill the vacuum left by a lack of private demand. Equally prominent economists, such as Jeffrey Sachs of Columbia and N. Gregory Mankiw of Harvard, have warned that short-term stimulus packages are wasteful and lead to deeper debt.

What most economists would agree on is that de facto policies, which range from political gridlock and kicking the can down the road to the federal spending sequester, have slowed growth. According to our model of the U.S. economy, the sequester will cut GDP growth by half a percentage point in 2013.

The labor market is still in bad shape. However, it is improving, and we are more than halfway over the hump. Here is a sketch of how we expect the rest of the recovery to unfold. In the third quarter of this year, real per capita GDP will hit its previous peak last reached at the end of 2007. In the third quarter of 2014, payroll employment will reach its previous peak of January 2008. In late 2015, the unemployment rate will drop below 6.5 percent, and the Fed will start raising interest rates.

And in 2018, the jobless rate will drop below 5.5 percent — full employment, at last.

Patrick Newport is director of long-term forecasting at IHS Inc. in Lexington, Mass.


9 comments Add your comment

Starik

September 4th, 2013
7:47 pm

A few points. Depending on the context, “small business” can be defined as fewer than 250 employees, or 500, or 1000. Many are quite large and profitable. The whining by “small businessmen” caused the imposition of Georgia sales taxes on Amazon purchases…a tax raise anyway you look at it. The poor small businessman may pay income taxes, but with exemptions for loosely defined “business expenses” like luxury cars, tickets to sporting events and “business” meals means an effective tax rate much lower than that paid by the paycheck-earning worker.

I suspect that the slow hiring is due at least in part to automation, not so much the problems of the poor, put upon businessman.

Gordon82

September 4th, 2013
1:53 pm

“Mr. Obama has tackled some important issues like Healthcare Reform, Green Energy and other worthwhile projects.”

Tackled? Really?

Jack ®

September 4th, 2013
1:49 pm

Mr Jackson’s piece is at the heart of the matter. Small business IS the backbone of our economy. Hillary decried that in ‘93-94 by saying that if a small business couldn’t afford to pay its empoyees’ healthcare expenses, it shouldn’t be in business. Ted Kennedy said that small business people were bottom feeders. So, we’re right back where we started from; Obama’s whole program of paying for healthcare is that the cost of healthcare should be on the shoulders of employers and policed by IRS. It’s not going to work; the program will crash of its own weight. My employees know that if I should have to pay their insurance costs that it will come out of their pay. If that doesn’t work, I’ll close the doors of a business I started 45 years ago. Most people have no idea how close the margins are for the self-employed and if the demand for doulbling the minimum wage takes place, there’ll be more closings. If our Harvard educated president had to own and operate a small business, his whole liberal notion of reality would change.

Jack ®

September 4th, 2013
1:24 pm

Enter your comments here

SAWB

September 4th, 2013
12:19 pm

Mr. Obama has tackled some important issues like Healthcare Reform, Green Energy and other worthwhile projects. However, he has not focused enough on the economy even though he was included in related discussion before the election. In his zeal to promote his agenda he pushed through ill designed and unsustainable programs that have now become an impediment on economic growth.

Going forward both parties need to recognize two realities: ObamaCare is the law of the land and ObamaCare is flawed. Only by focusing on the reality of this situation can Congress take the necessary steps to improve this program and reduce the burden on the American people. By finding was to leverage existing private sector healthcare infrastructure the program could provide the intended benefit without becoming an expensive bureaucratic mess.

William Smith

September 4th, 2013
11:21 am

Don’t blame any one politician for this problem. This has been a co-operative effort by both parties. Both parties passed laws allowing companies to out source jobs with government help. Both parties have allowed our education system to produce students without needed skills to compete in a world wide economy. Both parties have allowed our health care to become so expensive that many of our citizens that have jobs and work must decide between healthcare and food. This healthcare problem hits hardest at the elderly. It seems the norm that the only time both parties have any desire to accomplish anything is to go to war. A friend of mine returning from the Afgan conflict told me they are building a super hospital. How strange that both parties can find funding for this.

Dusty

September 4th, 2013
10:59 am

Jobs! Jobs! My kingdom for a job! So sayeth the unemployed! Should we blame the president? Well…………he did promise us with our shovels ready. But no dirt!

He did promise to make us all healthy. He forgot to tell us that we would also be broke, homeless and jobless in the process. But HEALTHY!

He did let the printing presses roll out new money not worth a cent to console those without it.

He did pile on the national debt without mentioning it at all. Shhhhhh. (over 17 trillion) Shhhhh!…

He really takes all these things seriously and he is very much concerned and even his putts on the golf course are affected. Martha’s Vineyard was amazed at these serious consequences..

Is the president responsible? Heavens NO! He’s a Harvard graduate. Doncha know that Harvard graduates never fail nor do they fade away. They just plant a money tree and let the dollars fall.

. Yes sir. .We get it! We really really do! Right where it hurts!

Don't Tread

September 4th, 2013
10:31 am

I’m sure the labor market in China is booming and wages are expanding, at the expense of the US worker. (You can thank Clinton for that.) Add 0bama’s fiscal (”stimulus”) and regulatory policies, 0bamacare, and accumulated federal debt to the mix, along with a side helping of automation, and presto! …you now have the “new economy” diet.

Get used to it.

Rafe Hollister

September 4th, 2013
9:57 am

The second longest recovery ever! The first longest was during the administration of FDR, Obama’s hero. Any coincidence?

Had he followed tried and true remedies as employed by JFK and Reagan this would have been over much sooner, but Obama allowed his ideology to take precedence over economic growth. We have been debating for 5 years on how to equably divide the pie, instead of concentrating on how to grow the pie. Obamanomics plain and simple, is largely to blame for this unemployment and wealth disparity!