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Do Regulations Kill Jobs? Not at All, Says Reid

Posted By James Gattuso On November 16, 2011 @ 3:57 pm In Featured | Comments Disabled

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In a floor speech [1] yesterday, Senate Majority Leader Harry Reid (D–NV)claimed that “only a tiny fraction of layoffs have anything at all to do with tighter regulation.” In fact, he said, “last year, only three-tenths of 1 percent of people who lost their jobs were let go principally because of government regulation or intervention.”

It’s an impressive sounding stat. The same or similar figures have been picked up in media outlets ranging from The New York Times [2] to Mother Jones [3] as proof that regulation is not a contributing cause of America’s stubbornly high jobless rate. However, the statistics are not only of doubtful accuracy, but have little to do with the primary cause of joblessness in the U.S. economy today: the lack of job creation.

The numbers come from the Labor Department’s Bureau of Labor Statistics [4] (BLS), which, in cooperation from state authorities, tracks mass layoffs, defined as layoffs of 50 or more workers for 31 days or more. In each case in which such a “mass layoff” is identified, state authorities interview the employers involved, asking them (among other things) the reason for the layoffs. For the third quarter, BLS reported that 0.3 percent of respondents listed “governmental regulations/intervention” as the reason.

It appears to be a simple process, but it’s actually quite tricky. The first problem is that economic hardship does not come with labels. Employers know if their costs are rising but not necessarily whether it is due to new burdens imposed on their suppliers or other factors. They may know that they didn’t get the capital they needed but not if it was because investors had better opportunities or because of government financial rules. They will know if demand has slumped, but it’s not so clear whether it was because their product is valued less by the marketplace or because government rules choked off demand from customers. The actual causes are likely to be mixed.

But even if government interviewers could identify with precision the reasons for mass layoffs, that would tell us little about why unemployment is so high. Mass layoffs are only part of the job loss picture—job losses don’t always come 50 or more at a time. Most small businesses don’t even have 50 employees.

But where Reid and others really miss the mark, however, is in assuming that job losses are the problem, rather than a lack of job creation. As argued [5] by my colleague James Sherk, layoffs spiked early in the recession but then they fell sharply. Since late 2009, gross job losses in the economy have actually been below their pre-recession levels. In fact, in 2010 there were fewer gross job losses than any time since the government began tracking these figures in 1992. Unemployment remains high because the economy has not been creating jobs. Last September, for instance, employers hired only 4.2 million new workers—a million fewer monthly new hires than before the recession.

None of this is reflected in the BLS’s mass layoff reports. Employers are asked why they let employees go, not why they didn’t expand. No one asks would-be entrepreneurs why they did not start an enterprise last month or inventors why they did not invent something. When small businessmen are asked about their concerns, they increasingly cite regulation. In a survey of small businessmen [6] conducted last month by Gallup, for example, government regulation topped their list of concerns,  topping both “consumer confidence” and “lack of demand.”

Of course, no one argues that the drop in job creation is solely due to regulation. But regulation is certainly a big part of the problem—placing a burden on anything will decrease the amount of it produced, and regulatory burdens have increased at record rates the past few years. Decreasing regulatory costs should be part of the jobs solution.


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URL to article: http://blog.heritage.org/2011/11/16/do-regulations-kill-jobs-not-at-all-says-reid/

URLs in this post:

[1] Image: http://author.blog.heritage.org/wp-content/uploads/4419721839_cbf54a74ae_z.jpg

[2] New York Times: http://www.nytimes.com/2011/11/10/us/politics/the-role-of-regulation-in-holding-back-business.html?_r=1

[3] Mother Jones: http://motherjones.com/kevin-drum/2011/10/regulatory-uncertainty-debunked-part-infinity

[4] Bureau of Labor Statistics: http://www.bls.gov/news.release/mslo.nr0.htm

[5] argued: http://www.heritage.org/Research/Reports/2011/09/How-Congress-Can-Support-Not-Hinder-Labor-Market-Recovery

[6] survey of small businessmen: http://www.gallup.com/poll/150287/gov-regulations-top-small-business-owners-problem-list.aspx

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