The latest attempt by Congress to wrestle the high unemployment rate is the HIRE Act, which is little more than a tax holiday for companies who hire additional workers. Even if this Act works as intended and encourages businesses to hire more workers, which in and of itself is not a guarantee, then other measures undertaken by the Obama Administration have the opposite effect, by actually stifling hiring by business. Some of the measures that counteract intentions of the HIRE Act are the minimum wage increases of the last few years, uncertainty of pending legislation on healthcare and cap-and-trade, and the Davis-Bacon Act that requires government contractors to pay wages that are above the market rates.
The idea behind the HIRE Act is that the payroll tax holiday would reduce the cost of labor for participating companies by temporarily suspending the employer’s share of the Social Security payroll tax, thus coercing companies to hire new workers. However, the impact of such a measure is unclear, since the tax holiday will only be temporary and will have little impact – a qualified employer who hires a worker earning $51,000 annually will receive a subsidy equaling roughly $264 per month. However, these subsidies amount to lost revenue in the Federal Social Security Trust Fund – an institution that even without this additional burden is running a significant deficit.
The minimum wage increases in the last couple of years have contributed to a rise in the unemployment rate. The minimum wage was increased from $5.15 to $7.25 between 2007 and 2009. It is a fact that unemployment goes up as the minimum wage increases because businesses have to pay workers more to keep them employed, and inadvertently not all workers are kept after the minimum wage increases. Congress made their task of decreasing the unemployment rate that is currently hovering around 10 percent more difficult by their actions from several years back.
Another reason why businesses are reluctant to hire more workers is because they feel a sense of uncertainty for what bills may be enacted by Congress. Critical bills such as healthcare reform and cap and trade legislation are currently being contemplated, which could significantly increase the price of labor for businesses. Until they are certain about whether or not they must pay for healthcare of ever worker on payroll, or whether the cost of energy could potentially rise due to cap-and-trade legislation, businesses are not going to be enticed by a temporary payroll tax hike to hire workers whose wages will need to paid indefinitely into the future.
The Davis-Bacon Act is yet another measure currently on the books that hinders rather than encourages more hiring. Government construction spending has to cost more than the market rates, and to pay for this extra cost, the government takes money through taxes from elsewhere in the economy. But Congress cannot reduce unemployment through public works projects, because for every job that it creates in the public sector, at least one job is not being created in the private sector and in the best-case scenario the net job creation is zero, but 160,000 jobs are actually lost because of this legislation.
Although the HIRE Act is intended to reduce unemployment, there are many other bills and laws currently on the books that directly counteract the goals of this bill. Congress should consider how to assuage negative effects of these other laws before looking for new ways to decrease unemployment. The fact that Congress is looking at ways to decrease the unemployment rate is a good sign, but attempts by Congress to decrease the unemployment rate will never succeed if other laws are passed that actually lead to higher rates of unemployment.