Weak Demand to Blame for Unemployment, Not Taxes or Regulations

The core of the ideological economics debate the country has beared witness to over the last few years centers on essentially 2 elements;

1) Taxes and regulations are slowing the recovery and restraining growth and hiring

and…

2)  Demand is the primary mover of job creation, especially during an economic recovery

Another, in a fairly long list of studies finds once again that the latter is true. Demand, or lack thereof, contributes more significantly to business’ decisions to expand and begin hiring.

(Reuters) – Tax and regulatory uncertainty, blamed in some quarters for keeping companies from hiring, has little to do with high U.S. unemployment, according to research by the San Francisco Federal Reserve Bank published Monday.

The main reason that U.S. unemployment has remained high is likely because households hurt by the housing crash simply are not spending, according to the research, published in the latest issue of the San Francisco Fed’s Economic Letter.

Focusing on the reasons businesses cite for not hiring, the study’s two authors — Atif Mian, a Princeton University professor who is currently a visiting scholar at the San Francisco Fed, and Amir Sufi, a professor at the University of Chicago Booth School of Business — found no correlation between worries about regulation and taxes, and employment growth.

“Employment collapsed precisely when businesses began worrying about poor sales,” they said. By contrast, “there was almost no correlation between job growth in a state from 2008 to 2011 and the increase in the percentage of businesses citing regulation and taxes as their primary concern.”

Indeed, states where businesses increasingly cited regulation and tax worries actually had greater job growth than states without such intensifying concerns, though the correlation was not statistically significant, they said.

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