The Corner

Obamacare No Prescription for Hiring

Remember last year’s “recovery summer”? The summer when job growth swelled and unemployment fell sharply?

Neither does anyone else. It never happened. Employers created few net jobs last summer. Unemployment did not budge.

But that is not what the administration thought would happen. In the spring of last year President Obama and Vice President Biden confidently predicted the economy would soon turn around.

This was not mere over-optimism. The White House had good reason to believe employers would soon start adding jobs. Typically, the economy grows sharply after a sharp recession — more unemployed workers and underutilized capital exist for entrepreneurs to put to new uses.

After the recession’s low point in January 2009, the monthly jobs reports improved at a rate of over 67,000 jobs a month. If that trend had continued, by the summer employers would have been creating hundreds of thousands of net new jobs. The White House had good reason to expect a recovery summer.

But that didn’t happen. The figure above comes from a recent WebMemo I published for the Heritage Foundation. Private-sector job growth maxed out at +229,000 in April 2010. In May 2010, net private job growth dropped to 48,000 and largely stopped improving. From then on, the reports improved at a rate of only 6,500 jobs a month — a fraction of their previous rate. Unemployment remains above 9 percent.

What happened? On March 30 the president signed his health-care plan into law. Almost immediately the jobs reports stopped improving.

Of course, correlation cannot prove causation, but there is good reason to believe that this was no coincidence. Obamacare significantly raises the cost of employer-sponsored health insurance for large employers and gives small businesses strong incentives not to hire more than 50 workers. This discourages new hiring.

Federal Reserve officials report that this is exactly what is happening:

Prominent among these [factors businesses report are holding back hiring] is the lack of clarity about the cost implications of the recent health care legislation. We’ve frequently heard strong comments to the effect of “my company won’t hire a single additional worker until we know what health insurance costs are going to be.”

In surveys, one third of small businesses owners say that the new health-care law poses their greatest or second greatest obstacle to hiring new workers.

The data strongly suggest these business owners are not blowing smoke. The job market ground to a near standstill almost as soon as the law passed and businesses learned what would hit them. If America creates a French-style social welfare state, we will also get French levels of unemployment.

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