The sluggish recovery of U.S. jobs since the recession began is due to companies being mired in business uncertainty about national policies rather than other hiring and financial roadblocks, according to a University of Colorado Boulder study.
Businesses are uncertain about the yet-to-be-realized costs of policies such as health care, tax reform and environmental cap and trade as regulations take shape and are implemented, according to lead author Sanjai Bhagat, a provost professor of finance at CU-Boulder鈥檚 Leeds School of Business.
If business uncertainty were to revert to levels that were observed in pre-recession 2005, corporate employment would increase by about 3.35 million jobs, according to Bhagat.
鈥淲e鈥檙e not seeing a normal bounce back from the latest recession,鈥� said Bhagat. 鈥淥n average, it takes about 24 months for the economy to regain prior employment benchmarks. In this case, about 60 months have elapsed and we鈥檙e still 3.2 million jobs short of where we were at the peak in 2007.鈥�
Contrary to what some have argued, company access to capital is not the prevailing issue, according to Bhagat.
鈥淪ome of these corporations are sitting on hundreds of millions to billions of dollars of cash,鈥� said Bhagat. 鈥淏ut they don鈥檛 know if they should be hiring more people, investing in other facets of their businesses, like R and D and manufacturing plants, or just wait.鈥�
Bhagat presented the paper with co-author Iulian Obreja, an assistant professor of finance at the Leeds School, in January to the American Economic Association. Also last May, he spoke to the American Enterprise Institute on a panel about the paper, including Chief Economist Adriana Kugler of the U.S. Department of Labor.
To measure business uncertainty levels, the authors looked at stock market volatility and also tracked negatively worded headlines -- including terms such as 鈥渞isk鈥� and 鈥渦ncertainty鈥� -- in U.S. business media from 1985 to 2010, finding strong correspondence between the two sets of information. They also applied econometric models to the data to calculate business uncertainty through the years and compared the results with unemployment rates.
鈥淲hat鈥檚 unique about our research approach is that it鈥檚 the first to use an economic model to show econometrically a direct correlation between the increase in business uncertainty and the decrease in corporate employment,鈥� said Bhagat.
鈥淥ur findings suggest that if policymakers would like companies to increase their hiring and investments, they should focus on policies that decrease business uncertainty,鈥� said Bhagat. 鈥淚n other words, a meeting of the minds in D.C. to offer clarification and timelines on things like health care costs, both corporate and personal tax rates, and carbon emission regulation could be helpful.鈥�
To view a copy of the paper visit听. For more information about the Leeds School of Business visit .
Contact:
Sanjai Bhagat, 303-492-7821
sanjai.bhagat@colorado.edu
Elizabeth Lock, CU-Boulder media relations, 303-492-3117
elizabeth.lock@colorado.edu