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Regulatory Uncertainty Leaves Small Businesses Reluctant to Hire

I know of only one small business owner who has confidently added staff throughout the recession and that’s only because A) he’s really cocky (in the best way, of course) and B) he absolutely needed to in order to survive. Lucky for him he ended up in a fairly recession-proof business and in fact, the recession has been kind as it has driven all sorts of new business to him as the unemployed and jaded look for new career options. But he’s a fluke success and not all small business owners can say they’ve weathered the last two years as well as he has.

Dallas Fed President Richard Fisher and former St Louis Fed President William Poole both feel the hiring problem is based not on the fact that businesses can’t afford it but because business owners are too unsure of the regulatory environment to confidently add staff. I am going to have to agree with them on this one.


Said Fisher in a recent speech:

For some time now in internal discussions with my colleagues at the Fed, I have ascribed the economy’s slow growth pathology to what I call “random refereeing”—the current predilection of government to rewrite the rules in the middle of the game of recovery. Businesses and consumers are being confronted with so many potential changes in the taxes and regulations that govern their behavior that they are uncertain about how to proceed downfield. Awaiting clearer signals from the referees that are the nation’s fiscal authorities and regulators, they have gone into a defensive crouch.

Case in point, Obamacare’s insidious 1099 requirement that we’ve covered plenty up to this point and will continue to cover so long as it threatens to cripple businesses with unnecessary busywork. The House had a chance to kick the requirement in the balls last with with the Small Business Paperwork Mandate Elimination Act (H.R.5141) but failed to pass it, leaving us right back where we were*.

Business owners – and small business owners in particular as they tend to have less capital and fewer chances to “warehouse” out their employee insurance needs in bulk – are understandably reluctant to plug more money into the economy if they are unsure as to how much it’s going to cost just to hire on new staff. Many businesses could hire at this point but have chosen not to simply because they have no idea what sort of financial impact hiring will have on them in the future once new rules are fully written out and implemented.

Seems a bit counterproductive when we’re trying to claw our way out a recession, doesn’t it?

*Full Disclosure: JDA is long Caterpillar at this point in anticipation of the number of bulldozers that will be required just to keep up with the 1099 goodness. How is this helping the economy heal again?