Economists were shocked Friday when the May jobs report showed only 38,000 jobs were created last month, and the former chief economist for the Labor Department says slow economic growth is dragging down hiring thanks to excessive government regulations and the negative impact of minimum wage increases around the country.
The 38,000 jobs were created in a month where experts thought 162,000 jobs would be created. Only 25,000 of those jobs were the private sector. Even with the Verizon workers strike playing out, the number is dismal.
“Even if those had been counted, the amount would have been woefully low, only about 60,000 private sector jobs. Employers, for whatever reason, decided they were cutting back, especially on low-skilled workers,” said Diana Furchtgott-Roth, who served as the top economist at the Department of Labor from 2003-2005. She is now a senior fellow at the Manhattan Institute and directs the Economics 21 program there.
She also says there are very clear reasons employers are cutting back, starting with a sluggish economy.
“Job gains have been decreasing for seven or eight months in a row, ever since October. These are linked to slow GDP growth,” said Furchtgott-Roth.
She notes GDP grew just 0.8 percent in the first quarter of 2016. The two quarters before that showed 1.4 and two percent growth.
“If you have a steady decline in GDP growth for several months in a row, it is going to eventually pick up into employment. Employment is a lagging indicator. Employers don’t lay off as soon as they see a decline in demand because they want to see if it’s real and hiring new workers is difficult,” said Furchtgott-Roth.
Furchtgott-Roth says the data also show that low-skilled, poorly educated Americans are the ones suffering the most. She adds that the push for a higher minimum wage is a disaster for those people.
“It’s primarily low-wage workers that are dropping out (of the labor force). There was practically no change for workers with a BA and above, which suggests that these increases in the minimum wage are having an effect. If you’re worth $7.50 an hour, no one’s going to pay you fifteen dollars an hour and you’re going to be left jobless,” said Furchtgott-Roth.
Another major issue grinding the gears of the economy is the ever growing list of demands on employers from the federal government.
“What we’re seeing is this onslaught of regulations from the Labor Department. Regulations on who has to be paid overtime, regulations on whether a franchised employee is an employee of the franchise or an employee of the parent company, regulations on independent contractors,” said Furchtgott-Roth.
She cited another regulation as emblematic of the government’s invasive reach.
“There’s even a regulation that says if a company hires an attorney to advise on labor issues, the name of that attorney has to be made public. All those other attorneys’ clients and the amount paid to the labor lawyer by all these clients (must be disclosed). So With regulation after regulation coming back, it’s not surprising that companies are deciding that maybe less hiring is better than more,” said Furchtgott-Roth.
But while job creation slows down, wages also remain stagnant. Furchtgott-Roth says there is some misunderstanding here. While wages are not rising very much, total compensation is on the rise. The problem is it doesn’t end up in our wallets.
“Wages are just one part of the compensation package. Employers often provide pensions, benefits, sick leave, maternity leave, health care. With these other kinds of benefits getting more expensive, the most notable is health care after Obamacare, something has to give. It’s often the cash wage,” said Furchtgott-Roth.
She says the frustration is compounded when employers spend more to provide health coverage to employees instead of raising wages only to leave employees with higher medical bills because of rapidly rising deductibles.
So what would trigger greater economic growth and lead to more job creation and higher wages? Furchtgott-Roth says several approaches are proven winners.
“The empirical evidence has just demonstrated that lowering taxes and lowering regulations would have the most effect. If we can roll back some of these regulations on employers, they would be more likely to hire,” said Furchgott-Roth.
“If we could lower our top tax rate, our corporate tax rate, from 39 percent, which is the highest in the [Economic Organization for Co-operation and Development] to something like the OECD average or something below it – that’s 24 percent or lower – we would attract a lot more investment from abroad and we would encourage companies to bring back earnings which right now are stuck offshore,” said Furchtgott-Roth.
