Instant Lie Detector Test: Small Business Hiring Delayed by Uncertainty

There is a line being pushed by some on the right (e.g. David Brooks today) that small businesses are putting off hiring because of uncertainty over the costs they may face from health care reform, global warming restrictions, or other tax and regulatory changes.

It is understandable that small businesses would be reluctant to commit themselves to having another employee on the payroll if we were in a country like Italy or Spain where permanent employees have a substantial degree of employment protection. Employers in these countries (and most other wealthy countries) cannot simply lay off workers any time they choose.

However, if we live in the United States, we know that employers here can lay off anyone they want, any time they want, with no restrictions whatsoever. This assumes that there is not a union contract, which is the case for 93 percent of private sector employees and close to 100 percent of employees of small businesses.

Suppose that we have a conscientious small business owner who can't stand the thought of laying off workers. (This isn't facetious, such people exist.) Would these small business owners be reluctant to hire workers right now because of uncertainty over future costs? Well, consider that 4 million workers leave their job every month. That is almost 3 percent of payroll employment. If employers are worried about costs that they may face in 2011 or even 2012, they are virtually certain to see substantial attrition in their labor force between now and then.

This means that even if they don't want to lay anyone off, small businesses need not worry that hiring today will leave them with more employees than they can afford once President Obama and his Big Government crew bury them in taxes. In short, when they say that uncertainty about taxes is delaying hiring, the David Brooks crew is just making things up.

--Dean Baker

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