Opinion

The Great Debate

Obama’s family-friendly agenda will hurt job growth

November 21, 2008

diana-furchtgott-roth–Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. The opinions expressed are her own.–

Everyone knows Marisa. She may be your next door neighbor or former colleague. She’s unemployed and looking for a job, or just wants to change jobs. She’s highly motivated, well-credentialed, and experienced.

But these are tough times. The unemployment rate, now 6.5%, will likely rise further as plunging retail sales lead to cutbacks in production and more layoffs. The economy is contracting now and is unlikely to resume expanding before summer 2009—if then.

One might think that President-elect Obama would be devising a plan to help Marisa and all 10 million unemployed find new jobs, as well as millions more who want to change jobs.

But, unfortunately for Marisa, Obama has plans to make hiring workers more costly. His campaign’s “family-friendly” workplace agenda exceeds any that America has ever seen. These plans, if enacted by Congress, may deliver benefits to Americans whose employers are doing well and who are fortunate enough to have a job, but will make it devastatingly more difficult for Marisa and other job-seekers, particularly those with low skills, to find work.

Take, for instance, Obama’s proposed expansion of the 1993 Family and Medical Leave Act. That law now entitles employees of firms with at least 50 workers to 12 weeks of unpaid leave a year for the birth or adoption of a child, to cover a worker’s sickness, or to care for close relatives with serious health conditions.

Obama wants to expand the FMLA to firms with 25 workers and apply it to more absences. His transition Web site, www.change.gov, cites “leave for workers who provide elder care” or who care for persons who have resided in the worker’s home for six months; “leave for parents to participate in children’s academic activities at school;” and “leave for employees to address domestic violence and sexual assault.”

And, Obama wants to give states incentives to require employers to pay for these absences, in addition to paying for any overtime or temporary help to perform the duties of absent workers.

Even if the economy were healthy, many small firms would view these regulations as a reason not to hire some new workers, and perhaps even to let some go. With the economy reeling, Marisa has even less chance of getting hired. She would be entitled to paid time off not just for her own sickness or pregnancy, but also to take her sick aunt to cancer treatments and to go to her son’s school play.

Perhaps Marisa has no aunt with cancer and no children, so would be unlikely to need the new FMLA provisions. There’s no way for the employer to know—because asking these questions is against the law. Each job candidate thus becomes a potentially costly hire.

Beyond expanding FMLA, the president-elect wants to require larger employers to pay for seven sick days a year, which many already do. That, too, would raise costs and discourage hiring.
Obama also would require employers who don’t offer health insurance or who don’t “make a meaningful contribution” to employee health-care costs (presumably by paying a significant share of insurance premiums) to pay into a new federal health-care fund—in essence, a new tax.

All of these expansive campaign promises sound noble and are no doubt accompanied by the best of intentions. But if enacted by Congress, especially in 2009, they would make it less likely that employers will hire.

The conclusion that higher costs of labor change employers’ hiring decisions has been documented by numerous economists, including Harvard economics professor Alberto Alesina. Alesina’s book, “The Future of Europe” shows how the economies of Europe and America diverged in the 1970s. Higher taxes and costs of labor stifled European employment, causing fewer opportunities, shorter work hours, higher unemployment, and lower productivity.

If the 44th president wants to encourage hiring, he might find ways to lower business costs and taxes and scale back and defer his campaign promises to workers. They would benefit more.

As unemployment climbs and stock markets continue to fall, will Obama leave Marisa jobless, or will he change course?

Diana Furchtgott-Roth can be reached at dfr@hudson.org.

Comments
32 comments so far | RSS Comments RSS

She blames the economic situation on “Future administrations” just like bushs pet Paulson.
Bush is the current president, we are reaping the benefits of his trickle down theory and 0% corporate tax cuts. The current economy is the result of this. You neocons had your turn at the wheel, and you destroyed the economy. Its time for something new.

Posted by matt | Report as abusive
 

Its going to take a while to straighten this mess that we are in out it took 7 years to get in the mess and its going to take a few more to get out we are headed in the right direction with gas hitting a low that we have not seen in years. Products at the market are dropping their price as gas goes on down. Jobs will start to peak as the economy gets better we have a number of democrats in the house now and they can put their thoughts together for the good of the economy.

 

I PERSNALLY THINK THIS IS PARTISAN CRAPOLA. anda really outdated business philosophy that people aren’t buying cuz t’s a mask for greed Realistcally a ocmpany that needs… NEEDS.. employees will hire them.
Also they’ll be more likely to stay if the employer is family friendly and diverse.
OR maybe we should keep the curse ooops course and go to 30% UE ?

Posted by dn | Report as abusive
 

Can somebody explain to me how the proposals work in Europe but cannot work in the USA. Could it be greed!!

Posted by Tony | Report as abusive
 

As usual the news media, Reuters included, picked another ‘expert’ from the current political base….one that helped bring about the current financial mess…to pass off another failed opinion as fact to the rest of us. Reuters, why can’t you find a Real Economist not affiliated with either party to give an impartial opinion. By virtue of passing this editorial as news, Reuters once again proves which side they are on in the great politically divide.

Jobs were not a problem in the past before the current crop of bushite ‘economists’ came in, and they won’t be a problem after bushites are gone. Its time the bushites should shut up, listen, and learn for once.

Posted by Jay Smythe | Report as abusive
 

You are spot on! As a small business employer, I shudder when I think of Pres-elect Obama’s promises. I, the risk-holder, who gets various calls 24/7, has to deal with all problems, and bears the burden of any “socialist” legislation sent down from our horrifyingly bad Gov. of Michigan. I have to compile and pay Sales, Social Security, etc.. All this takes time. Businesses are swamped in regulation. Why more? I do not believe that we need to give anymore. Enough is enough. The propaganda that is spread about the evil business owner is onerous, and someone needs to step up and change the poor perception. We have worked many years where our managers made more money than we did. Now, 11 years later, we are starting to see a very nice income. What Obama says about “us”, the supposed rich, is ridiculous. We have waited patiently for our retirement, and now Obama wants to take it. What luck!

Posted by Michelle in Michigan | Report as abusive
 

Obama has never run anything, much less had business experience, and almost no one appointed in his administration so far has had any business experience outside of a large Wall St. bank.

Almost everyone in Obama’s administration is an Ivy league academic, banker or lawyer.

For them, tinkering with business rules is like dripping chemicals on a petrie dish and seeing what the strange microbes they see under a microscope will do.

 

Yes, right. And if the minimum wage is raised every fast food restaruant will go out of buisness and if we don’t do away with workmans comp how can employers afford to hire workers. And if we let companies figure over time on 80 hours instead of 40 they’ll be able to hire more full time workers….except that every one of those chestnuts turned out to be a lie.
Every time we get an administration that proposes to do something for the workers of this country some wingnut mouthpiece starts telling scare stories of lost jobs. Well we just had 8 years of an admnistration that bent over backwards to make it easier for employers to cut employee benifits and now we have higher unemployment that at any time since just after the last Democratic started to clean up the previous Republican mess.

Posted by IaintBacchus | Report as abusive
 

The question to author: How productive Marisa can be being a) pregnant at work, b)working with baby child, c) taking care of sick relative or not taking care of sick relative and feel horrible, d)stay at work and not be able to help her child at school,
e) etc.
Marisa can be more productive if your company is good for her and human. Both sides can abuse trust of each other – employer and Marisa. Recommend to watch and analyze movie Office Space.
Restrictions do not bring or motivate productivity at work. Small employers should care about their staff and should have/obtain skills to manage Marisa properly. It is 21 century not 19th.

Posted by Fromformerempire | Report as abusive
 

Tony, it works in the EU because they have many countries, close together, that they can freely trade with. The US is basically alone on this side of the world.

Don’t forget it was Bush’s tax cuts that delayed the situation we are in. The fact is we had a chance to do something 5 years ago that would have been more solid but we didn’t. Nobody is blaming future administrations. It is just that we don’t need to exacerbate the problem by making brash decisions that got us into this mess in the first place. Change is good, but changing simply for the sake of changing is pointless and harmful.

Can someone explain to me how taking money away from businesses allows them to hire more employees?

 

What do you want except that major tax cuts for yourself and rest of rich. If any crumbs fall of the table those less fortunate can come and eat them if they kiss up to you and do garden, clean the floors, trim the bushes and treat you like a queen.
We have had enough of the 246,000 dollars tax cut for every million dollars of taxable income just from the lowering of the dividend rate from the 39.6 to 15 percent.
We have enough of the lowering of the capital gains rate to 15 percent from 20 percent. We have enough to the lowering of the 39.6 taxable rate to 35 percent. If we add them up for guys like Buffet, Gates, the Waltons, and yourself, the Bushes, the forbes and some 530 other billionaires we will find you are legally deducting 297 thousand dollars for every one million dollars of taxable income and Bush has averaged borrowing 1.6 billion dollars every day from the very first day he has been in office. He has raised the national debt by more than 6 TRILLION DOLLARS AND IT IS STILL RISING WHILE HE TWIDDLES HIS THUMBS AND INFRASTRUCTURE CRUMBLES, THE MANUFACTURERING SECTOR FALTERS AND HE IS FLYING AROUND THE COUNTRY AND WORLD SPENDING 40 THOUSAND DOLLARS AN HOUR ON AIR FORCE SAYING GOOD BYE TO THOSE HE HAS ASKED TO BACK HIM FOR ALL HIS LIES.

Posted by Carl Justus | Report as abusive
 

Stick it to business. That’s the American way; always a good solution. I mean, they handle large amounts of money, so just take it, right? I mean, what would they do with it; buy tools or injection-molding machines or some such needless frivolity? Charge them for every phone call to subsidize residential service. Hit them with double your tax rate, and then tax the dividends again. When you wake up a couple of years from now, with your head sore from resting on the sidewalk (or maybe in your cousin’s barn), on the way to the feeding program, stop and think about the country that took your job, because business was able to operate without parasitism. Social welfare is a government responsibility. Let business compete!

Posted by Pete Cann | Report as abusive
 

I think you will find that the better you treat the people that work for you, the harder they will work. If you have child care at work you know they will miss less work. Some places even have shared work days so more people can work part time according to their needs. I worked for a man that was great, he told me that exc. were a dime a dozen but hard loyal workers were hard to come by and worth holding one to. He paid at the top of the wage for his line of worked, offered health care and talked one on one with his employees. he said if you want to see if you are doing the right thing then talk to the janitor. When he passed away the world lost a good man.

Posted by Luvenia | Report as abusive
 

Isn’t the bottom line not what we want but what this country can still get? This country is essentially a service economy. It lives continuously on the recycled money from the top down, from the bottom up and sideways and anything it can invent in other derivative dimensions. But the great abyss it dangles over and the “control” of our experiment in liberal democratic government are the countries that can pay for their needs on vast resources that are still fairly cheap for them to produce and the other gigantic countries with labor at any rate they care to set it at. Get real folks – most of us will be lucky if we can get food on the table at all in a little while. It will be amazing to see how many people who hate the rich – and I am by no means one of them – I am laughably self employed – with no health care coverage and no public benefits of any kind. If I get seriously ill I either apply to the town for welfare assistance until the house – my only asset is taken at my death or I leave at my own volition on a stretcher.

You people all sound a little like spoiled brats to me and ignore the fact the all the big global companies can move to Dubai and have the taxes paid for them just to provide employment for their up and coming and enormous hoardes of educated youth and so can all those very rich we may have good reason to despise. “Rich” being a very relative term has a way of tainting anyone with more than the critic. The entire world will roll out the red carpet for the very well healed and the well connected.

That is if the rich and the well connected can get their asses and their assets out of this place intact or even in part. The thing that really kills me about patriotic rhetoric is, those at the top don’t really have to subscribe to any of it. It is the story throughout history that “if you’ve got it you can get out (usually) before the ship sinks”.

This country has enormous competition out there and there are at least 3 billion people with a desire for work of any kind let alone employment that provides the luxuries demanded by the Obama team. And I voted for him because he read the constitution not because I thought he was going to dress us all in velvet let alone cloth of gold. Hitler’s just love times like these. I we sink into a long depression (and whether the current slow down is real or rigged – we could all wonder about that and still claim to be sane) it will be a growth medium for every mindless repression, regression and oppression we can imagine.

And the war – we still have Afghanistan and that probably will never go away, doesn’t seem to be doing our economy much good. They never seem to. But they get people keyed up and liable to fear some one else more than themselves. We can all vicariously die in the desert with the Taliban. I’m sure the next president will be stuck with it for some time.

We may have just had the most expensive campaign for just about nothing, in history.

Happy Thanksgiving.

 

If you treat employees better, they work harder and stay longer. The longer they stay, the less people you have to hire and train.
I guess Obama will find a way to get Marissa hired and ensure that Marissa is more willing to keep her job.

Posted by Dick | Report as abusive
 

We’ve had 20 of the last 28 years with Conservatives (Reagan, GHW Bush, GW Bush) at the helm and what do we have? A huge mess with the average worker not getting a raise (when adjusted for inflation) for the last 25 years. Yet the economy grows and grows. Where did all that money go? To the wealthy in this country and overseas, that’s where.
And now we’re already beating on Obama’s plans before he’s ever president? It figures.
How did this country become the greatest in the world after WW2 when wages rose and people had good paying jobs? How did we build the interstate highway system when we can’t even maintain it now? Why has health care become a disaster? And on and on.
Conservative policies are turning this country into a Banana Republic as fast as those policies can shift the wealth to the top and overseas with “free” trade. Free for whom? Certainly not the middle and lower classes. That leaves one class doesn’t it? But we won’t name that class.

Posted by Ray | Report as abusive
 

I’m fed up with the same old conservative arguments that
are so yesterday and just aren’t supported with ACTUAL
FACTS.
We have heard this mantra for too long…eg.: The Hudson
Institute’s “Scholar of the Week” is ROBERT BORK.
We hear the same junk from these folks anytime there is
an initiative to improve the lot of the working man or
woman.
Most conservative economic viewpoints just won’t wash.
“Trickle Down” has never worked…arguments against
increasing the minimum wage have NEVER been correct.
“Deregulation” and throwing off the “bridles of industry”
have gotten us INTO what problems we have today…NOT THE
OPPOSITE.
Diana Furchtgott-Roth should stay home and knit sweaters
to sell at her local farmer’s market….

Posted by dj oliver | Report as abusive
 

Well again and again we hear that rethoric, higher worker cost will kill the economy. Shame no economist like you said anything about public subsidies given to firms shipping jobs abroad. The real problem is that the giant corporations have no duties to the country. That’s the globalization GW Bush loves so much.
Let’s just give unemployment numbers that European countries (that are sooo socialistic compared to America) have nowadays.

UK : 3 % (free healthcare system)
Germany : 6.1 %
France : 8.7 %
Italy : 7 %
Netherlands : 5.5 %
Sweden : 6.2 %
Spain : 8.1 %
Switzerland : 3.3 %

Well that’s not all countries in Europe, but all listed here have a social security system working, almost 100% of their population covered by health insurance.

The unemployment rate in the US is around 5 % and growing fast, do you really see a great difference between these numbers ?

Not saying that one country is better than another, that’s another debate but listening to liberals it seems that a social security system cost is unthinkable in America and for US businesses. Strange I didnt see no earthquake happening in Europe while their workers are really suffering less than americans.

Posted by Jack | Report as abusive
 

Workplace protections don’t work for the worker. If you think people aren’t willing to work, look at the millions of US workers employed “at will” under conditions determined by their employer; they can be dismissed at any time for any reason. This makes childcare hard, family care hard, and creates stress in the home. No wonder we’ve got kids left to raise themselves, a crisis among elderly needing affordable care, and a surge in domestic violence; breadwinners can’t make a decision that’s good for their family and keep their jobs. People in the service industry go to work sick and tired because they’ll be fired for missing a shift, we get increased workplace injuries and pundits gripe about workers’ compensation. The ‘free market’ line of thinking is so bass-ackward when faced with reality it boggles the mind.
Worker protections will keep people employed, and require employers to make informed decisions in hiring. That’s all.

Posted by Scott G. | Report as abusive
 

Well for those uneducated folks on corporate taxes, the rate in the US is the highest in the WORLD. That’s right the WORLD. We have a corporate tax rate that’s driven most all corporations to move offshore. When the nearest rate to us is almost half – I’d say the Democratic congress has done a swell job in taxing and spending for the last 75 years. After all, they’ve controlled the majority for almost 8 decades. When we get our corporate tax rates in line with the rest of the world, I’d bet you anything most corporations would start moving jobs back to the USA. Do your research folks before you place blame.

Posted by Roundup_Logan | Report as abusive
 

I agree with a lot of posters here. I wonder why giving lots of money and tax breaks to the rich so they can “stimulate” the economy doesn’t work for the poor which are far more likely to spend it and be more effective ?

The small firm will be able to shoulder the additional cost, because all the people of america will have a little more to spend or to live for and it will raise the revenue pool for the small firm.

And for the european growth comparison, remember that financial services sector is far smaller there (except UK), and we have all seen that financial services growth was phony (all the trillions lost were counted as growth on previous years, i think total losses are 200% of USA PIB, so divide it by 20 years, and you see real USA growth was -15%, which should be obvious, all the manufacturing was fitted overseas, infrastructure is crumbling, we have only dot.com, financial, and defense industry left).

Posted by Beaubarre | Report as abusive
 

“If the 44th president wants to encourage hiring, he might find ways to lower business costs and taxes”
Lower business taxes? Done!
Reference: http://change.gov/agenda/economy_agenda/

Posted by Read_More | Report as abusive
 

Just because it is new doesn’t mean it can’t work. Family leave is even longer in France and other European countries, and they don’t have high unemployment. American is the only modern nation that has the least days of time off, vacation or sick or family leave, than any other modern country. It’s time to move this nation forward and not be stuck in industrial times thinking.

 

If the President-elect really wants to help the economy, he should enact the free-tax act, stop taxing businesss’,which would bring jobs back to America,and push out the unions which help drive up the cost of doing business. Thats just for starters.
I know many will argue about the unions, but look at the industries that are having trouble. The common thread would be the unions. Examples; Auto, constuction, truckers, production ….

 

Jack’s international unemployment rates are not quite correct. In 2007, the latest year available, the unemployment rate for the US was 4.6%; Canada, 5.3%; France, 8.6%, Germany, 8.7%; Italy, 6.2%, Sweden, 6.1%, and the UK, 5.4%. The data are from the Bureau of Labor Statistics, ftp://ftp.bls.gov/pub/special.requests/F oreignLabor/flsjec.txt.

All unemployment rates will be higher in 2008 due to the global recession but the rates of the major European economies will likely continue to be higher than those of the United States. The high cost of benefits discourages hiring, particularly of low skill workers, who fail to get entry-level jobs and move up the career ladder. Further, it is difficult to fire workers in Europe, so employers are more reluctant to hire new workers: if there is a downturn in demand they risk getting stuck with a worker they don’t need. In addition, the higher levels of unemployment benefits in Europe mean that workers can afford to stay out of work longer, and can be more selective about their next job.

The United States ranks favorably on international comparisons of labor flexibility compiled by the Organization for Economic Cooperation and Development. This labor flexibility contributes the dynamic nature of the American workforce and its relatively low unemployment rate. Reducing labor flexibility, as President-elect Obama proposes, won’t help employers hire workers–which is what we all want to see happen.

Diana

Posted by Diana Furchtgott-Roth | Report as abusive
 

Sadly Americans continue looking to blame a lone journalist or present/previous presidential administrations for their woes. This is an amalgamation of problems that took over half a century to culminate in a inevitable financial collapse. Administration after administration has never been held accountable because ideologues believe “their candidates” hold the “solution”. Until Americans realize this present candidates will continue doing NOTHING and America will be doomed to continue being bitterly divided come election time. In short, this current economic situation is going to become even more grim because Americans are too divided to successfully pressure congress to do its job right. (As is evident via reading some of these ridiculous posts). Realize what is and isn’t economically feasible; be a harsh realist like this journalist — Remember party affiliation and Utopian ideals have no place when one is counting money.

Posted by john | Report as abusive
 

If the President-Elect really wants to promote employment and job growth, all he need do is announce that:

A) He will not sign any bill increasing taxes, and

B) That he supports making the Bush tax cuts permanent.

Posted by Gabriel | Report as abusive
 

Former chief economist for the U.S. Department of Labor under WHOM? Reagan? Bush I? Bush II?

Posted by ellen | Report as abusive
 

There is nothing wrong with the underlying goal. Most of the public expects the President-elect to pursue employment-enhancement programs. That is part of the reason Obama was elected. The question is the distribution of resources. Do the markets allocate capital less efficiently than policy makers and strategists?

Our experience with the Clinton admistration shows, it is possible to talk up a market to enormous heights. You can make people optimistic about the dot-com industry – and then ruin their lives when the sector collapses. Was it a good thing to talk up the dot-com industry? Some people think so.

I have operating product prototypes. I wouldn’t mind getting start-up funding. But we can snuff out these ideas quickly by taking capital from available sources and pouring everything at near-death companies. It’s a bit like cashing out the children’s educational savings to keep a great-grandparent’s hospital equipment running. This is what happens when people don’t have faith. Folks have a hard time believing that other industries will emerge. Anyways, we all have to live and go under by the decisions we make. So one way or another this problem is self correcting.

Posted by Don | Report as abusive
 

So this woman knows more than Lawrence Summers or Tim Geittner. Meh.

Posted by Randy | Report as abusive
 

Giving tax breaks to corporations that move production overseas defies reason. Not funding education while exercising no spine whatsoever when securing trade deals regarding automobiles and other U.S. manufactured goods invokes my worst suspicions. So far the government has only supported the interests of capital while doing nothing for the working (middle) class or the poor. Capital injections have done nothing to free up credit as this does not address the issue of demand. It should also be noted that our unemployment numbers do not reflect those who have exhausted their benefits or the underemployed. We could determine that through the IRS but do not. I suspect that is why our numbers always look better than the Europeans as they are more thorough at determining jobless rates.

Fiat currencies are worthless paper. Our society has predicated economic growth on the issuance of more worthless paper (unregulated securities, increased borrowing and printing of money along with deceptive account balance practices for determining trade deficits). One has only to read the “Wealth of Nations” to conclude that Adam Smith’s dire warnings regarding these three issues were correct. He also warned of allowing one’s nation’s manufacturing base to erode. We have heeded none of his warnings or for that matter those of President Washington as well. Are we really a capitalist society at all? I suspect not.

I have no credentials Ms. Roth, however it seems to me you are just a disciple of a particular school of thought and base your judgments on misinformation that all too many of us accept as fact. The interests of capital did nothing to lift the nation out of the Great Depression and very little to bring in revenue for the subsequent war effort. Do you not conclude that we are at the precipice of a similar economic catastrophe? Also, did the massive spending for the war in conjunction with rationing (conserving) of resources, high wages and wage and price controls have anything to do with the funding of the war or the creation of the middle class? I believe so.

Posted by Anubis | Report as abusive
 

I remember hearing this rhetoric when Clinton signed the Family Leave Act. As I recall not only did companies not fold up, but the economy did quite well. These were the same people who made fun of Clinton for a promise to balance the budget. I agree with some of the comments already made, ie the Neocons have had their turn and it has put us close to the economy of 1930. Let’s give Obama a chance.

Posted by Beth | Report as abusive
 

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