Treasury: Is Regulatory Uncertainty a Major Impediment to Job Growth?

[ProSense]

Is Regulatory Uncertainty a Major Impediment to Job Growth?

By: Dr. Jan Eberly

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If regulatory uncertainty was a major impediment to hiring right now, we would expect to see indications of this in one or more of the following: business profits; trends in the workforce, capacity utilization, and business investment; differences between industries undergoing significant regulatory changes and those that are not; differences between the United States and other countries that are not undergoing the same changes; or surveys of business owners and economists. As discussed in a detailed review of the evidence below, none of these data support the claim that regulatory uncertainty is holding back hiring.

Business Profits

If regulation was a significant drag on business today, we would expect to see profits constrained after recent regulatory reforms were passed into law. However, corporate profits as a share of gross domestic income have about recovered their pre-recession peak, and earnings per share in industries most affected by recent regulatory changes, such as energy and health care, have among the highest earnings per share of those in the S&P 500. This growth is inconsistent with a corporate sector held back by regulation.

Trends in Workforce, Capacity Utilization, and Business Investment

If regulatory uncertainty was the primary problem facing businesses, firms would prefer to use their existing capacity and current workers as much as possible, while avoiding building additional capacity until they are more certain about the contours of future regulation.

Specifically, if demand was strong but businesses were concerned about future regulations, they would increase the hours of the workers they already employ rather than hiring additional workers. We have seen no evidence of this in the data: the average work week for private employees has been roughly flat for the past year. Similarly, if demand were strong, firms could easily expand using existing capacity without taking on the cost and risk of added capacity. However, the share of total potential industrial output in use remains 3 percent below its long-run average. Low capacity utilization is inconsistent with concerns about future regulatory risk, but aligns with weak demand holding back current production.

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[dkf]

1. This then makes the argument that business is right not to hire as the problem is lack of demand

If you expect business to hire despite the lack of demand, then that is where extra regulations may make them reluctant.

[OHdem10]

2. The GOP use this line Regulatory Uncertainlty hoping to gain

enough cover to OVERTURN Dodd-Frank Bill.

In the last election the COC and Wall Street spent
money trying to get Candidates who would overturn
Dodd-Frank and get the three Trade Bills passed.

The GOP are on a constant rant about too many regulations.

What they want to do is change back to the old ways
and permit Wall Street to turn the place into a Casino
and bring the country down for good.

[saras]

3. Uncertainty about whether they can get a better deal in some other country, perhaps

[randome]

4. The Republican mantra of 'job-killing regulations'...

...is never supported by a concrete example. It's always an amorphous certainty that 'must' be true because they say it is.