August 21, 2010
The Washington Post interviewed several business leaders who told them that additional stimulus would cause them to hire more workers. However, because of its poor grasp of economic relationships, it failed to understand what the business leaders were saying.
The article begins by asserting that:
“Many Democrats say the economy needs more stimulus. Business lobbyists and their Republican allies say it needs less regulation and lower taxes…. But here in the heartland of America, senior executives say neither side’s diagnosis fits.”
The article then cites several top executives who say that they will not hire until they see more demand. This is of course exactly the argument of those who urge more stimulus. Stimulus spending will hire workers and/or put money in their pockets through tax breaks. This will cause them to spend more money (the saving rate is still quite low by historical standards), which will translate into more demand for businesses. According to the executives interviewed in this article, additional demand will lead them to hire more workers.
The article also attributes a reluctance to hire workers to uncertainty about the future or pessimism. There is zero evidence that the failure to hire more workers is attributable to anything other than weak demand.
If firms were changing their hiring behavior due to pessimism, then we would expect to see an increase in hours worked per worker. We don’t. The increase in average weekly hours since the low-point last fall has not been more rapid than in other recoveries and average weekly hours are still far below their pre-recession level. So, there is no evidence to support the view that hiring patterns are responding to demand any differently than they had in the past.
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