Shedding Light On Uncertainity
In a new report, Lawrence Mishel of the Economic Policy Institute debunks the claim that “regulatory uncertainty” is responsible for the lack of job growth. From the report …
A simple review of investment and employment trends—what businesses are actually doing— reveals that employers are not behaving according to the narrative described in the uncertainty story: Employment and investment trends are what one would expect (or better) given the trends in the overall growth of the economy (i.e., the actual growth or shrinkage of gross domestic product).
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Let us start by comparing investment, specifically investment in equipment and software, in the first two years (which is where we are now) of each of the last four recoveries. Figure A does so by examining the changes in the investment (equipment and software) share of GDP from the beginning of each recovery. The data show that investment has increased more in this recovery than in the prior two recoveries and roughly the same as that of the 1980s recovery. It is interesting to note that there was no growth in investments (as a share of GDP) in the George W. Bush recovery. That means that this recovery, with Obama regulations pending, is far more investment-led than the recovery under the deregulatory Bush administration. So, investment does not look like it is being held back, at least relative to other recoveries and the size of the market (i.e., GDP). To be transparent, this analysis leaves out investments in business “structures” because that type of investment is clearly faltering as a result of the bursting of the residential and commercial real estate bubble….
Mishel then discusses issues related to employment …
Private-sector job growth has also been better in this recovery than in the last recovery, as shown in Figure B, which looks at the growth over the first 25 months of the last four recoveries. The three recoveries since 1991, however, had very little job growth, at least at first, and all have been referred to as “jobless” recoveries. There was much faster employment growth in the 1980s recovery—mostly because the Federal Reserve had much more room to support this recovery through lower interest rates than it has had during the post-1980s recessions (and the 2000s recoveries in particular). There is certainly nothing special about job growth in the current recovery that stands out from the 1991 and 2001 recoveries to indicate a special regulatory-caused job problem.
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The most unusual aspect of this recovery is that government jobs have declined by roughly 600,000 (2.6 percent), whereas government jobs grew in the prior recoveries. Obviously, the loss of government jobs is not the consequence of fears of regulation. Despite the loss of government jobs in this recovery but not the last one, there has been more job growth overall (public- and private-sector) in the first 25 months of this recovery (up 0.5 percent) than in the corresponding period in the 2001 recovery (when jobs fell 0.4 percent).
Mishel further builds his case with evidence pertaining to weekly hours and wages, along with survey data drawn from businesses, particularly small ones. That evidence leads Mishel to conclude the following …
In conclusion, when looking at both what employers are doing in terms of hiring and investing and what they (and their economists) are saying in private surveys, it’s nearly impossible to make the argument that uncertainty about regulations is holding back the economy….