I've been arguing for several months, as have others, that the ongoing sluggishness of the US labor market is the result of regime uncertainty over policy changes both past and potential. In particular, I have argued that the lack of clarity around the new health care law and its effects on labor costs are a major source of the problem. Critics have dismissed the regime uncertainty argument as a mere hypothesis with little direct evidence (despite Bob Higgs providing several examples). But now, thanks to James Sherk at the Heritage Foundation, we have some pretty good evidence that Obamacare has been a job killer and that the route is through employers balking at hiring thanks to uncertainty about its impact.
He offers data that show that job growth was doing quite well up until the spring of 2010, but that growth flattened out considerably after the passage of Obamacare. Here's his introduction:
Private-sector job creation initially recovered from the recession at a normal rate, leading to predictions last year of a “Recovery Summer.” Since April 2010, however, net private-sector job creation has stalled. Within two months of the passage of Obamacare, the job market stopped improving. This suggests that businesses are not exaggerating when they tell pollsters that the new health care law is holding back hiring. The law significantly raises business costs and creates considerable uncertainty about the future.
And here's the graphical version:
Sherk also cites a talk by Dennis Lockhart, the President of the Atlanta Fed, in which he reports on interview data they collect from businesspeople in their region. Lockhart summarizes part of their findings:
Here's what doesn't feel normal. In addition to slow and uncertain revenue growth, contacts in this recovery are frequently citing a number of other factors that are impeding hiring. Prominent among these is the lack of clarity about the cost implications of the recent health care legislation. We've frequently heard strong comments to the effect of "my company won't hire a single additional worker until we know what health insurance costs are going to be."
More generally, our contacts cite a litany of uncertainties as reason for a wait-and-see posture toward expansion-related spending and hiring. These include the longer-term fiscal plan at the federal level, the extension of the Bush tax cuts, and the effect of various regulatory proposals. I know it's difficult to disentangle these concerns from mere frustration about weak demand. But the restraining effects of policy uncertainties are repeated frequently and with great vehemence. In my opinion, a first priority is that government authorities bring clarity to matters central to business planning.
It's important to have both the data showing the change in the trajectory of job growth and the interview evidence from the business world to make the case for regime uncertainty. The data are plausibly interpreted by the regime uncertainty hypothesis, but without the sort of direct evidence that interviews can provide, especially something like the quote that concludes the first paragraph, all we have is correlation with a plausible story. Put statistical data and interview data together and you've got something. Sherk's short WebMemo is a very helpful contribution.
For those who have argued that Obamacare is a job killer via regime uncertainty, here's the evidence.