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.

32 comments

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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