Why IS It a Jobless Recovery? (And What Can We Do About It?)

Uncertainty about the administration and governmental benefits fraud are keeping unemployment higher than it should be

   

investorpoliticsletters2 Why IS It a Jobless Recovery? (And What Can We Do About It?)There are numerous theories circulating as to why this recovery is different from the rest.

At this point during Ronald Reagan’s term, America had added 5.1 million net new jobs. At this point in Obama’s term, America has added a mere 30,000.

Some of this can be attributed to technological advances and improvements that have made more and more jobs obsolete, but that certainly is not the primary reason.

No, the backbone of the recovery isn’t there because of uncertainty.

The first degree of uncertainty involves regulatory issues, which I’ve written about before. In fact, I just completed an investigation of the EPA’s overreaching in the silicones industry — one that will cost that sector some $50 million in unnecessary costs if the matter is not resolved. The EPA almost killed the cement industry, had it not been for Congress and the courts. Countless other regulations have saddled U.S. businesses, and every regulation costs those businesses money.

Thus, the $2 trillion of private equity sitting on the sidelines doesn’t want to invest in the kind of high-growth businesses that hire lots of people because they fear this administration’s regulatory zeal will target that very industry next. No investment means no jobs.

What kinds of businesses do these private equity funds invest in? Companies like LinkedIn (NYSE:LNKD). Companies like Yum! Brands’ (NYSE:YUM) Taco Bell. Office Depot (NYSE:ODP) has a private equity investor. The list goes on and on.

Minimum wage has been the subject of controversy for decades. On the one hand, it seems obvious that without it, workers would unquestionably be taken advantage of. On the other hand, it’s exactly why jobs get shipped overseas. Why pay a customer service rep at United United Continental (NYSE:UAL) or Delta Air Lines (NYSE:DAL) minimum wage when you can get someone in Pakistan to do it for less? Minimum wage laws lead to higher unemployment, and those rates have been increasing.

Government assistance also is providing a disincentive for people to resume seeking work.

Unemployment benefits also are a double-edged sword. When the American Recovery and Reinvestment Act was passed, it gave unemployment recipients an extra 25 bucks each week. The federal government has been supplementing the states’ extended benefits plan for years. While the total number of weeks one may collect unemployment is now below the previous 99-week maximum, recipients still can collect for months at a time.

In addition, the number of Americans on government disability has skyrocketed. The workplace has not suddenly become more dangerous. People obviously are abusing this system, and nothing’s being done about it.

Meanwhile, the number of people on food stamps has hit a record high of 46.7 million. One must wonder about the actual necessity of this handout for at least some of the recipients. A doctor friend in North Carolina tells me she constantly sees patients on food stamps, who then proudly announce they are off to the mall to “buy the new iPhone and get a manicure.” Am I to believe this is an isolated incident?

Once these government programs are reformed and qualifications are perhaps checked more thoroughly to eliminate fraud, and once extended unemployment benefits peter out, I suspect we’ll see folks re-enter the work force.

The bottom line is that the recovery is not being driven by proactive entrepreneurial activities, with a few clever and innovative exceptions. Instead, it is being driven by businesses being reactive to government policies — policies that are not conducive to growth or capital spending, but rather the opposite.

I’m not trying to author a commercial for Mitt Romney. However, any reasonable person can see that the current president’s policies are not encouraging businesses, and they are enabling the unemployed to remain jobless.

Yes, people needed some additional assistance in the hardest of times — I supported the extended benefits because that money also got spent directly into the economy. However, things have improved. Companies are ready, willing and able to hire. They just won’t actually hire until all this uncertainty is removed.

I don’t believe it will be removed if the current administration returns.

As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned securities. He is president of PDL Capital, Inc., which brokers secure high-yield investments to the general public and private equity. You can read his stock market commentary at SeekingAlpha.com. He also has written two books and blogs about public policy, journalistic integrity, popular culture and world affairs.

The opinions contained in this column are solely those of the writer.

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