e21 Asks: How to Create Jobs

In our most recent poll, we asked e21 readers, “What is the most effective way policymakers could stimulate job creation?” A plurality (37 percent) believed simplifying regulations should be the top priority. “Cutting taxes” came in second place, with 26 percent of the vote total. About a fifth (19 percent) regarded immigration reform as most important.

“Increase infrastructure spending” and “reduce the minimum wage” received 13 percent and five percent of votes, respectively. 

The editors at e21 believe each of these changes can stimulate job creation. There is no doubt the regulatory state’s size and scope have grown significantly in recent years (Dodd-Frank, the Affordable Care Act, environmental regulations, tax complexity). This imposes costs on private enterprise, leading to reduced economic activity. 

A paper published earlier this year in the Journal of Economic Growth, Federal Regulation and Aggregate Economic Growth, by John Dawson and John Seater, found that “[f]ederal regulations added over the past fifty years have reduced real output growth by about two percentage points on average over the period 1949-2005.” It is important also to note that increasingly complex regulations create an environment of uncertainty, often making it very difficult to do business. We will never truly know how many businesses were not started or expanded because of onerous regulations. 

Cutting taxes is no less important. We should particularly focus on bringing down our corporate income tax rate, which remains one of the highest in the industrialized world. A study released earlier this year by the Tax Foundation estimated that reducing the corporate rate from 35 percent to 25 percent would lead to an average of two percent more income for taxpayers. A lower tax rate could attract back some of the $1.7 trillion in corporate earnings held overseas. Lower taxes will also lead to more consumer spending and business investment in the economy. 

Immigration reform is critical in that a clearer, more streamlined immigration process will allow talented people to enter America. We need a system that allows foreigners to come and start new firms, and American employers to easily hire both unskilled and highly-skilled immigrant workers. U.S. labor force participation is at a 35-year low of 62.8 percent. Research has shown that immigration has substantial economic benefits. 

Reducing the minimum wage will make it economically viable for employers to hire workers whose contribution lies below the current wage floor. The teen unemployment rate, standing at an unacceptable 22.2 percent, is evidence of the minimum wage’s negative effect on low-skill employment. Those interested in the minimum wage’s role in increasing unemployment may be interested in research by University of California- Irvine Professor David Neumark, which is summarized here. 

While e21’s editors recognize that increased infrastructure spending can lead to economic growth, the federal government is simply not in a position to spend more. Nor can the federal government evaluate the costs and benefits of infrastructure spending in the 50 states. This is a role for the states and the private sector. But unless the budget situation improves, governments’ ability to provide for such goods is limited.