Economic barriers to hiring

Globally, oversupply is depressing prices, which is forcing employers to cut costs.

Posted: August 12, 2010

Dramatic changes in the worldwide economic structure raise serious concerns, and much of the public debate and many decision-makers, as the old saying goes, can't seem to see the forest for the trees.

The debate is too tightly focused on partisan rhetoric and how current global competition pits nations with differing cost structures, regulatory systems, and financing schemes against each other. We need hard work focused on achievable strategies if we are to thrive under the new realities.

Much of the current talk misses two key points:

Overcapacity and oversupply in sector after sector has restricted if not curtailed pricing freedom, and this has an extreme and detrimental impact on hiring.

The rising purchasing power of overseas markets could offer an opportunity for economic growth in the United States. These countries could become markets for more American products and create jobs. To cite just one example, China's upwardly mobile free-spending middle class numbers 300 million - the size of the U.S. population - and they have an additional billion people coming along.

Overcapacity is, indeed, a serious barrier to putting our people back to work. The supply of almost everything outstrips demand. In the commodities market, for example, natural gas, grain, steel and copper oversupplies are depressing prices. In the manufacturing sector, there is much more capacity than the market requires. The automobile industry is a prime example.

In many areas we have more hospitals, banks, engineering firms, and lawyers than we really need. The historic problem of scarcity has been replaced by the problem of overabundance.

This suppresses pricing freedom and intensifies pressure to cut costs to maintain profit margins sufficient to attract essential capital.

That is what is happening now. Corporations are productive with good profit margins and abundant cash on hand. To maintain that profit, they control costs, and the biggest component is employee costs. Instead of hiring, they spend on laborsaving technology and extract more work out of the existing workforce.

Businesses are deciding that, for them, higher levels of U.S. unemployment are a necessary and acceptable way to control costs and boost profit. They will continue to see this as an acceptable economic price to pay as long as they can access growing foreign markets through greater cost-controlled competitiveness. This approach will produce a rising economic growth rate, but a very slow, if not stagnant, rate of putting people back to work.

The macroeconomic forces and trends at work today demand fresh thinking, smart planning, and skilled negotiating. It is time for smart change, the kind Henry Ford fueled decades ago by paying his workers better wages so they could afford his automobiles.

That view of an economy driven by domestic consumer demand may be dated in some business circles. But preserving the American way of life requires good jobs in this country.

It also requires that citizens do their homework and think more deeply so they won't be fooled by highly paid cable TV talkers who oversimplify complex issues. The citizenry would be wise to reassert itself and demand that decision-makers get serious about such issues and speak to us as adults.


James J. Florio (jflorio@florioperrucci.com) is a former governor of New Jersey.

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