On June 10, Catherine Rampell at the New York Times presented what she thought was a seemingly inexplicable and troubling conundrum, which this column will clear up:
Spending on equipment and software has risen 25.6 percent in the last seven quarters, while companies’ aggregate spending on employees has risen only 2.2 percent.
Somehow, capital spending is growing faster and labor spending is growing more slowly than has been the case in almost every previous recovery on record.
A few days later, in an interview with President Barack Obama which has become infamous for his out-of-touch reference to how ATMs are replacing bank tellers — as if that’s something new — NBC’s Ann Curry opportunistically jumped on Rampell’s report to take a shot at America’s private sector:
Curry: You’re here encouraging private sector hiring. This just after the New York Times this past Friday reported that businesses have spent just 2% more on hiring people while at the same time spending 26% more on equipment. So why, at a time when Corporate America is enjoying record profits, have you been unable to convince business to hire more people, Mr. President?
Obama: I don’t think it’s a matter of me being unable to convince them to hire more people, because they’re making decisions based on what will be good for their companies.
The statist subtext of Curry’s words was offensive enough. Her venom is even more apparent if one looks at the interview segment’s video. What she really seemed to want to ask was: “Darn it, why aren’t these companies doing what they’re supposed to do? Don’t they know it’s their duty to follow your wishes, Mr. President?”
In Curry’s world, companies apparently have an obligation to spend their “record profits” (itself a questionable contention; corporate income tax collections of $85 billion through May of fiscal 2011 are less than half of what they were through May 2008) on hiring people, even when doing so doesn’t make sense. If it did, Ann, they’d be doing it. Worse, she seems to believe that El Presidente should be able to “convince” companies to add people even if doing so costs more than the newbies will contribute. It’s as if she’s begging Obama to use the bully pulpit — and to go further, if necessary — to “persuade” and if necessary force employers to take on people they don’t need or want.
Obama’s initial answer to Ms. “Command and Control” Curry was uncharacteristically good. Of course businesses have to look out for “what will be good for their companies.” Obama’s statement just before his awful ATM cite was also correct:
There are some structural issues with our economy where a lot of businesses have learned to become much more efficient with a lot fewer workers.
Ah, but what are these “structural issues,” Mr. Obama? What is so fundamentally different about this attempted recovery compared to “almost every previous recovery on record”?
At the Times, Ms. Rampell only nibbled around the edges, citing “rising benefits costs and, in particular, rising health insurance costs.” But employee benefits have been increasing much faster than wages and salaries almost continuously since World War II. Why would they have a disproportionately negative effect this time around?
On Tuesday, Douglas French at the Christian Science Monitor, commenting on Rampell’s work, blamed the 2007-2009 hikes in the minimum wage. There is no doubt that an artificially high minimum wage is harmful to job-seeking teens and low-skilled workers. But in real terms, the current minimum is about 25% lower than it was at its peak in 1968. So in theory and in ordinary circumstances, perhaps those who thought that the job market might be able to absorb such large increases without hurting employment too badly had some basis for that belief.
Except for one thing: These aren’t ordinary circumstances.
In March 2010, Congress passed and Obama signed a certain law. Nicknamed “ObamaCare,” this law “will force most American business firms to offer government-approved health insurance to their employees or else pay new federal taxes for not doing so.” The legislation will apply to any employee “working 120 hours per month.”
But why does ObamaCare matter if it mostly won’t kick in for another 2 1/2 years? That’s easy, but clearly not well understood.
If you are running a business, you structure it and design your future plans based not only on the world as it is today, but also on what it may look like in the reasonably near future. You must prepare yourself for likely worst-case scenarios. The one relating to employment is that ObamaCare will survive legal and electoral challenges. Facing that possibility, you avoid hiring people. When looking at “man vs. machine” decisions, you choose the machine if it’s at all affordable. You do everything you can to squeeze productivity out of your current crew, even larding on extra duties and overtime if they can handle it.
Additionally, companies are run by human beings who, especially at smaller businesses, really hate to have to let people go (and of course, they, like their larger brethren, also must worry about unemployment insurance costs, wrongful termination lawsuits, and the like). If you believe that having additional employees around will become cost-prohibitive in 2014, you avoid hiring them today. Combine all of this with historically weak post-recession economic growth, and you have the perfect recipe for what has resulted: lackluster hiring, heavy use of part-timers and temporary help, and the aforementioned bias towards automation.
There’s a quick answer which mostly explains why these job-market and economic conditions are present. It’s not what Ann Curry apparently believes and wants her viewers to believe, which is that it’s some kind of unprecedented orchestrated exercise in corporate greed.
Five words explain businesses’ rational response: Machines are exempt from ObamaCare.
ALSO READ: “The American Experiment Is Failing.”