← Quora archive  ·  2011 Nov 05, 2011 09:29 AM PDT

Question

Are U.S. businesses not creating jobs because of policy uncertainty?

Answer

I very much doubt it. User-9918985937555143421 has provided a couple of theoretical reasons why this might be true, but I haven't actually met any business owners or HR decision-makers who think this way.

There are very few businesses where the regulatory and entitlement environment is the primary or even a top-five variable in making workforce decisions. It's not that those things are unimportant or cheap (quite the contrary). But other factors are way more important.

For small startup companies, talent is the be-all-and-end-all. Regulatory environment is rarely even a concern. Just an annoying factor buried in paperwork. Hire-or-contract needs are based entirely on financial resources and risk management around company success (i.e. if you have the money, spend it to grab somebody who is more likely to make your company successful).

For growing medium-sized companies, managing growth, defending uncertain new market positions, and defining core competencies properly is what drives hiring decisions. For such companies who they hire is about shaping their identity.

For large, public companies, the question starts to become a combination of bean-counting factors that are put into play remotely (i.e. different budget centers being given different numbers of "seats" to hire against) and human factors at the hiring manager level.

The latter do not care at all about regulatory environment or healthcare or taxes.

The former basically run big spreadsheet-crunching exercises that factor in the following main concerns:

  1. Stock market environment: the better the stock market environment (and by this I mean , the easier it is to manage share prices without affecting hiring practices, which are longer-term and strategic decisions.
  2. Cash position: the more cash you have on hand, the more you can decouple strategy from wall street (because you have some room to do things like stock buybacks to directly affect stock prices to counteract sentiment-based movements).
  3. State of mature markets: these are the businesses that are spinning off cash and being squeezed for savings. They generate the cash flow necessary to generate hiring capital. Businesses are always looking to cut headcount here via outsourcing, automation, ceding parts of operations to supply chain partners etc. The regulatory burden/healthcare costs etc. can sometimes become a huge situational burden that overwhelms everything else (think Detroit), but this is rare. And the point is, that when this happens, it is because of fundamental structural shifts. Regulatory changes can't stop such Titanic situations.
  4. State of growing markets: cash being pulled from the mature businesses is generally plowed back into the business in the growing markets. BUT this process has a delay built in. Between savings and new investments there is a sort of holding area where people agonize about whether the timing is right for trying to grow (an interplay of "are we too early/too late"? thinking and "is this this the economic environment in which to take growth risks?")
So what the bean counters basically do is: look at the cash needed to manage the stock price and take care of that first. With any surplus left, they look at market conditions and decide basically whether they want to own cash or people.

If they decide they can invest in people, they create hiring tickets for the clamoring and competing line units and hand out permission slips.

The point of me describing the process at different scales is simply to try and illuminate why there isn't as much leverage in tax laws or healthcare regulation as you might think. People are basically a depreciating capital asset requiring variable-costs maintenance, and how much to hold is primarily a function of uncertainty on the revenue front, the broader economic environment, and prospects for declining and growing parts of the business.

You can make people much cheaper by creating a "sale" using tax law/healthcare law ("TWO FOR ONE SALE ON SOFTWARE ENGINEERS! UP TO 70% OFF TRUCK DRIVERS") but unless you can make them actually free, you won't affect things much. Unlike individuals, companies aren't impulse buyers. They won't stock up on 10 bottles of shampoo simply because there is a temporary sale on. If it is a permanent sale, they can wait as long as they want.

And there's a limit to how much of a "sale" the government can create anyway. The upfront salary plus benefits plus unemployment taxes commitments are only a fraction of total costs. You also need to create the support infrastructure etc. A typical fully-loaded employee costs about 1.5-2.5x the up-front cost of salary+benefits.

You REALLY want to encourage hiring?

Make it easier to do FIRING. But that's another question.