Why Don't Businesses Create More Jobs?

     Before considering why businesses don't create more
jobs, we should consider, Why do businesses create any jobs? 
The mission of a business is to earn profits for its owners.  A
business must make products that are more valuable than the
resources used to produce the products.

     Businesses don't hire to create jobs.   Businesses hire
workers to produce value.   Suppose that the payroll cost of a
worker is $60,000.  The worker uses up $100,000 worth of other
resources.  If the worker's product is worth $170,000 the worker
has added value.  The business earns $10,000.

     If the product is worth only $150,000 the worker has
decreased value.  His employer loses $10,000.   The business
would have been better off if it hadn't hired the employee.  A
business that keeps on making that mistake soon goes bankrupt
and ceases hiring any workers.

     This built in accountability keeps free market businesses
on the road to producing more value than they consume. 
Businesses that fail to add value soon fade and fold leaving
production to their more successful competitors.

     There is no need for a bureaucracy to ride heard on free
market businesses to make them efficient and productive.  The
automatic penalties for decreasing value, and rewards for adding
value, keep businesses on track to productivity.  Those that fall
off the track are soon history.

     King consumer marks the score cards for businesses.  For
free market businesses the consumer's decision is final.  There is
no appeal.  It doesn't matter why consumers value a business's
products so little that they won't buy them for more than the cost
of production.  The business must please the consumers, or else.

     When a business believes it can produce value by hiring
employees, it will hire if qualified people are available. 
Businesses commonly pay to train employees so they will be
better qualified.

     There are only three reasons businesses don't hire more
employees.  The businesses may not be able to find qualified or
trainable employees.  It may not have enough investment capital
to hire and equip the employees.  Or, the businesses may doubt
that the employees will produce increased value.

     When large numbers of businesses all across the economy
quit hiring it is usually for one reason.  They are afraid new
employees won't be productive enough to add value.

     Producing anything involves risk of losses.  Production of
finished consumer goods takes time.  Sometimes it takes many
years.  Businesses always face the risk that consumers won't
want the product when it is completed.  There is also the
possibility other producers will find a less expensive way to
make the product and take away the customers.

     Government creates much of  the uncertainty about future
productivity and profits.  When government threatens to make
hiring employees more costly, or to make the employees less
productive, businesses fear to invest in new production. 
Government actions that threaten to dry up the supply of
investment capital have the same effect.  Uncertainty about
government monetary policy and future interest rates add to
businesses' uncertainty.

     Vague laws about the employer's cost for medical care,
the threat of "cap and trade," and all the other recent and
pending regulations, make future productivity and profitability
unpredictable.  Businesses that fear these threats sit tight and
don't invest more than they must to hang on.   This means little
hiring for new construction, new research, etc.

     If government really wants businesses to hire more
workers, government must back off the regulatory uncertainty. 
It must scrap the recent regulations and end the threat of new
ones.  This is the only plan that will put workers back into
productive jobs.

     Government can spend to create or subsidize jobs that
cost more than they produce.  Those non productive jobs are a
drag on the economy, not a stimulant.  Such jobs will never
provide the base for economic recovery.  These jobs only drag
us deeper into the swamp of economic stagnation.

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Copyright 2012
Albert D. McCallum
18440 29-1/2 Mile Road
Springport, Michigan 49284