Why Companies Aren't Hiring Now

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The stock market was rattled on Tuesday by underperforming manufacturing data.

The Richmond Federal Reserve Index, which measures manufacturing performance in the upper Southeast and mid-Atlantic regions, fell to -11 in July, down from a 7 in June. This signals a significant drop in new orders and shipments.

This comes just a week after the Philadelphia Federal Reserve Index reached a two-year high, which had rallied the market. Such a drastic swing in confidence in the manufacturing sector suggests that uncertainty will stretch into the late summer.

The data comes at a pivotal time for the Obama administration. For the 11th time in his presidency (by ABC News' count), Obama announced that he will pivot his attention back to the economy in an effort to create jobs, with a strong emphasis on U.S. manufacturing.

Even though the New York Stock Exchange (NYSE) recently touched all-time highs, American companies are reluctant to hire, particularly with greater uncertainty on the horizon.

Perhaps if the President wishes to create new jobs, the administration should address the primary reasons why companies are not hiring in ways that would generate stronger economic growth.

Here are five reasons why companies are not hiring right now.

1) Companies Cannot Find Qualified Applicants.

Despite the fact that millions of Americans are out of work, more than three million jobs out there are unfilled because companies cannot find qualified workers. Within manufacturing, there are more than 400,000 open positions, but employers say they can't locate the right human capital to fill them.

However, this problem could be the fault of the companies and a lack of an intelligent human resources strategy.

In a 2012 Gallup poll, two in three U.S. business owners say that word-of-mouth is one of the most important ways they find new workers. The second most popular source of locating workers is "referrals from existing workers."

Only 15% use the Internet as a critical source, 9% use newspaper ads, and 4% cite recruiters. Encouraging business owners to harness technology to find talent would be an important first step. Unfortunately, mobility and the willingness to move to places where jobs are available are limited by employees owning homes or due to their bias against where work is available.

2) Robots Have Replaced Human Productivity

The reality is that workers in American aren't competing against each other for jobs. They're actually competing against technology. In New York, fast food workers are demanding an increase in wages from $7.25 an hour to $15. While doing so, they will seal their own fate, and ultimately be replaced by more automation.

In the past three decades, new technology has been one of the greatest dividers of wealth in this nation. Jobs that tell technology what to do are in high demand, but few people are qualified (these are very high paying jobs in design, engineering, and analytics).

Jobs in which technology tells people what to do are low-paying, low-skilled jobs, the types that are emerging in an economy now dominated by automation and increased scale.

Technology is now deciding how much workers make, and college-educated, white-collar employees are no longer immune.

A Stanford professor recently commented that technology and scale are greater drivers of job displacement than previously expected. The famed economist David Ricardo noted this trend in technological unemployment a long time ago, but it completely seemed to have disappeared as a story for 190 years.

How did modern economists ignore this trend for so long?

Two reasons. First, they can't place radical innovation into their models.

Second, they fear being labeled Marxist for talking about ownership of the "means of production."

3) Regulatory Uncertainty Hammers Small Business

The delay in the employer mandate of the Affordable Healthcare Act is now affecting hiring.

Come 2015, companies will not be able to hire more than 49 full-time workers without offering costly healthcare, unless they are prepared to pay a $2,000 penalty per employee. In the law's Orwellian language, this penalty is called "a shared responsibility payment."

Of course, they can have more than 49 workers and not pay offer healthcare, but the workers must be part-time and work fewer than 30 hours a week. This doesn't bode well for hiring, particularly as the Obama administration continues to delay its own laws because implementation is extremely difficult and the rules are still quite vague.

Not only has Obamacare shuffled the deck on how business owners operate, but also Washington's meddling in other areas of people's lives has continued to drive greater uncertainty.

4) Hiring Isn't Cheap

In addition to the increase in healthcare costs, there are also increases in payroll taxes that companies have to take into consideration in 2013. The social security payroll tax returned to its pre-Bush levels, driving up costs on small businesses and entrepreneurs.

A simple solution would be to introduce an across-the-board payroll tax cut, and find ways to raise that revenue by closing tax loopholes elsewhere (the mortgage interest reduction would be a good place to start).

Unfortunately, Democrats don't believe that companies will hire more if wage costs fall slightly. Certainly, companies could invest in innovation or more automation. However, Democrats don't understand that sales positions would likely see an uptick in hiring, as it takes human capital to sell products for companies, and hiring talent is certainly motivated by a reduction in upfront costs.

5) They Don't Have to Hire

Finally, companies don't just have to hire because someone says they should. Businesses enter cycles and expand during periods of growth. Without enough demand for their products, they won't hire, but they also will not hire and expand if they do not feel comfortable yet.

As any small business owner knows, going from five workers to 10 is actually a massive change, and it requires a significant amount of knowledge to manage and coordinate a business.

Despite the fact that manufacturing is struggling in the United States, our Shah Gilani exposes the best job market out there in America: Being a lawyer in Washington D.C.

Join the conversation. Click here to jump to comments…

  1. Khaled | July 24, 2013

    How would the social security payroll tax that was returned to its pre-Bush levels drove up costs on small businesses and entrepreneurs if the employer tax rate (6.2%) never changed? The change was for the employee portion only which it should not impact the cost of hiring. #4 does not make sense to me.

    • Clarence | July 24, 2013

      I think that the larger international co's may not be hiring because of the trillions of dollars they are holding overseas. They want that tax reduction and are holding our country "hostage" until they get there way.
      That has been the implication of their "joint" statements about it.

  2. H.Craig Bradley | July 24, 2013

    ROLLING STONES ECONOMY

    Billionaire Real Estate developer and businessman Donald Trump just said in an interview on Fox news last night that our leadership just gives away advantage after advantage to China. They can not believe America is so stupid. It really throws them.

    Donald Trump claims there is no incentive or little incentive for business to invest capital to expand or to hire any new workers. Similarly, there is little incentive for unemployed individuals to look for work. There are too many Federal government entitlement programs available to support them, so why bother? Donald Trump suggests we need to incentivize people to work and invest in business. For that, he maintains we need "leadership".

    My take is why look for a job at all? I don't need or want one anymore and have enough assets to take care of myself for the rest of my life. Sure, I can not buy everything I might want, but I can get what I need. Like the Rolling Stones song: "You can't always get what you want, but you CAN get what you need …OH YA".

  3. H.Craig Bradley | July 24, 2013

    So What!

  4. Nick Georgalis | July 25, 2013

    Technology is the driving force behind productivity growth it always was and always will be. The cell phone, computer and the internet have transformed industry over the last two decades and have enabled companies to do more with less people. The reason that inflation is subdued despite all the money being printed is because the rate of productivity growth is exceeding the underlying inflation rate. But the rapid increases in productivity are resulting in unemployment because the government has encumbered the economy trhough regulation and taxation. The unemployment is the direct result of the Fed printing money to prop up stock prices in a no-growth economy and the companies taking advantage of technology to reduce expenses in order to sustain the elevated P/E. As long as the government continues to encumber the economy then unemployement will remain high and eventually civil unrest will ensue. By the way the article mentions that economists fear being called "marxist" when they talk about the "means of production" in reference to robots doing the work. What does that mean? It sounds like the writer is trying to push a leftist agenda and so I question his creditability and his veracity.

  5. PAM | July 25, 2013

    These companies have the unemployed middle class, (which has now become the lower class) over a barrel They only have to pay $7.50 hour to all, even college graduates, who are all happy just to get a job. The government and congress have seen to it that there is a huge pool of unemployed to choose from. Now they are blaming Obamacare that companies are not hiring because they will have to help pay for health insurance. The companies have been getting away with not providing health care and other benefits for the past 13 years, at least. They have sent our jobs overseas, raked in huge profits, and yet they do not want to hire workers, even though they only have to pay minimum wage, and no benefits. Twenty to 40 years ago, most employers paid health care and benefits. Our past Presidents ( not Obama), and Congress have changed laws to benefit Big Business, Big Banks, and Wall Street, where they all are in the 1% money making machine. This leaves out all the middle/low class wage earners.

  6. Jonathan | July 26, 2013

    What's this about the social security payroll tax returning "to its pre-Bush levels"? The payroll tax cut was instituted during Obama's administration. So the correct statement would be "to its pre-Obama levels." Falsely implying that there was a payroll tax cut during the Bush administration makes the article sound partisan and unobjective.

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