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November 6th, 2009

Uncertainty Is Hurting Job Growth

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In our post this morning on the October job numbers, we wrote that the third quarter’s increased productivity was a sign that employers have been successful in meeting their demand with fewer employees. Doing more (or about the same) with less is just one factor that’s holding back job growth.

Another factor holding back job growth is uncertainty. With the latest version of the health care bill circulating through Washington, small business owners are beginning to get a taste of what their future costs may include if the legislation is passed. Until employers get a concrete sense of what their wallets are up against,  hiring is likely to remain languid to say the least:

Many small business groups oppose the House’s 1,990-page health care reform bill, contending it would raise insurance premiums for many firms and create disincentives for hiring new workers.

There are certainly more variables besides just the health care reform that are anticipated to impact employer costs in the near future (commercial real estate costs, decreased demand and revenue, tax considerations, consumer incomes, etc.), but the health care legislation is one of particular importance and interest since the price tag is so astronomical and because there’s such a staunch divide between supporters and critics.

Employer Mandate

Just one portion of the House’s bill requires small business owners to pay for their employees’ health insurance, or they’ll be forced to pay a tax if they don’t:

Employers also could face this tax even if they offer insurance. If their coverage isn’t affordable to low-wage workers, these individuals could obtain government-subsidized coverage through the exchange, and the employer would be taxed to help pay for this coverage.

The CBO estimates that employers would pay $135 billion in penalties over 10 years as a result of the employer mandate.

Some small businesses could qualify for tax credits that would cover up to 50 percent of the cost of insurance. This credit, however, only lasts two years and is limited to companies with low-wage workers, [NFIB Tax Counsel Bill] Rys said.

Supporters

Not all small business owners disapprove of the mandate, such as Andrew Gross, managing partner of Radiation Technical Services and Sturdy Built Homes in New Orleans. However, some of the supporters, like Gross, are business owners who already pay the health insurance to all their employees.

Political Overhang

The point of this article is to point out that there are signs that the economy is starting to grow, but the job market is not. The uncertainty caused by the political overhang through new and expansive bills like health care is certainly one of the reasons why.

Just as consumers who are either on strict budgets or who are uncertain about their job future are less likely to make a big-ticket purchase, employers who face new and unknown costs are less likely to hire a new employees. Certainty breed confidence, but unfortunately, who’s certain of anything these days?

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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