How to Create Jobs in 2013

With GDP in decline, and employment numbers due out from the Labor Department on Friday, the big question on the minds of many Americans is how their jobs will fare in 2013.

Economists are forecasting that 180,000 jobs were created in January, and that the unemployment rate will decline to 7.7%.

Even if the forecasts are correct, the labor market is in poor shape, as my colleague Rex Nutting wrote last week. Read Nutting’s column "3 things Washington could do to create more jobs."

Since President Obama took office in January 2009, the economy has created only 460,000 additional jobs. Labor force participation rates — the percentage of Americans who have a job or who are looking for work — are at 1981 levels, the beginning of the decade when 12 million women moved into the workforce.

The percentage of employed adult men ages 25 to 54 has declined from 90% in 1989 to 82% last year.

What to do?

Redesign employer penalties for Obamacare

The Affordable Care Act is making hiring more expensive. Employers with more than 49 workers who do not offer a certain type of health insurance will face penalties of $2,000 per full-time worker per year, beginning in 2014. A firm that expands from 49 to 50 workers could face a tax of $40,000 per year (the first 30 workers are exempt).

Many firms of around 45 employees are may be reconsidering expansion, and some just over the limit are likely considering moving employees to part-time to avoid the penalty. Fast food chains such as Olive Garden and McDonald’s are reportedly thinking of moving workers to part-time. Professors are not immune. The Community College of Allegheny County is reducing hours of adjunct professors to avoid the tax.

Firms also have an added incentive to become more automated, to use more machinery and employ fewer workers.

The solution? Stop requiring employers to offer health care. Food, clothing and housing are equally important, but government does not require employers to provide them. Replace the employer tax with another tax that does not penalize employment, such as an income tax or consumption tax, because taxes on employment lower job creation.

Import immigrants

As America seeks to increase economic growth, immigration reform should be part of the growth agenda. If it were easier for foreign-born students and workers to obtain provisional visas to stay and work in America, visas that could transition into green cards later, America would have faster GDP growth and job creation.

Many immigrants are prominent in advanced scientific research. Over one-third of U.S. Nobel Prize winners in medicine and physiology between 1901 and 2012 were foreign-born.

Highly skilled immigrants are disproportionately represented in successful startups. They benefit the U.S. because they start new companies in America at greater rates than do native-born Americans.

Examples include Sergey Brin’s Google, Andrew Grove’s Intel; Jerry Yang’s Yahoo; Pierre Omidyar’s eBay; and Elon Musk’s PayPal and SpaceX, to name but a few. Past founders include Alexander Graham Bell, Levi Strauss, Adolph Coors, and Henry Heinz. These firms create jobs for immigrants and native-born Americans alike.

Immigrants are also needed at the low end of the skill scale. Farms provide income to farmers, as well as to other native-born Americans employed in the industry in trucking and distribution. If farmers cannot get low-skill immigrants to pick fruit, as was the case in Washington State for the 2012 apple crop, agriculture will move offshore to where low-skill labor can be found. It makes little sense to send a whole economic sector to other countries just to avoid employing immigrants. America could import produce from abroad at little additional cost. There are consumers who may not care where their food comes from, but American farmers most certainly do.

The bipartisan Senate immigration proposal released on Monday would streamline immigration law and allow more employment-related immigrants.

Lower the minimum wage

The increased minimum wage, which rose in three steps from $5.15 an hour in 2007 to $7.25 an hour in 2009, is pricing teens and low-skill workers out of the job market. Payments for Social Security, Medicare, unemployment insurance, and workers’ compensation bring the hourly total closer to $8.00.

The practical effect of the law is that workers with skills under $8.00 an hour don’t have the right to work. That’s one reason that teens and unskilled adults have high unemployment rates. Firms are investing in equipment such as self-scanning machines in supermarkets to substitute for employees.

As the adult unemployment rate rose 3 percentage points from 3.5% in December 2006 to 6.5% in December 2012 (data for January 2013 due tomorrow), the teen rate increased by nearly 9 percentage points, from 14.6% to 23.5%. The unemployment rate for adults without a high school diploma is 11.7%, compared with 6.9% for those with some college and 3.9% for those with a BA and higher.

David Neumark, professor of economics at the University of California (Irvine), and William Wascher, an economist at the Federal Reserve, have reviewed over 100 studies on the effects of the minimum wage on employment in a 2007 paper entitled "Minimum Wages and Employment." They conclude that "among the papers we view as providing the most credible evidence, almost all point to negative employment effects, both for the United States as well as for many other countries." Read the paper here.

Neumark and Wascher specifically mention teens and low-skill workers. They conclude, "Moreover, when researchers focus on the least-skilled groups most likely to be adversely affected by minimum wages, the evidence for disemployment effects seems especially strong."

Under federal law, employers are allowed to pay teens $4.25 an hour for 90 consecutive calendar days, or until their 20th birthday, at which point the wage has to revert to $7.25 an hour. Expanding the federal minimum wage exemption for teens, and extending it to low-skill workers, would reduce their unemployment rates.

Stop the war on fossil fuels

Everyone knows where the jobs are — North Dakota, with a 3.2% unemployment rate. And everyone knows why. The New American Energy Revolution is bringing new oil and natural gas out of the ground with a new technology, hydrofracturing. North America may become a natural gas exporter by 2020, according to the International Energy Agency, and a net energy exporter by 2035.

And everyone knows where the jobs aren’t: alternative energy, even though solar and biofuels have received billions in government loans and grants. There are plenty of bankrupt companies that have received government funding: Solyndra ($528 million from Uncle Sam), Abound Solar ($400 million), Beacon Power ($43 million), and A123 ($249 million), to name just a few.

But the administration is bringing out new regulations on hydrofracturing that could stem this industry. The Energy Department, the Interior Department, the Environmental Protection Agency, even the Securities and Exchange Commission, all have regulations under construction.

If the administration were interested in job creation, it would leave the regulation to individual states, as is the case at present.

The Environmental Protection Agency’s war on carbon is affecting the fossil fuel industry, which creates substantial numbers of jobs. Meanwhile, the Energy Department subsidizes alternative energy, which is creating few jobs and which slows economic growth.

With GDP in decline and high unemployment in the headlines, it’s time to look at some low-cost solutions to spur economic growth. By redesigning the Obamacare employer tax, immigration reform, lowering the minimum wage, and regulatory reform, Congress and President Obama could create more jobs without spending another dime.

This piece originally appeared in WSJ's MarketWatch

This piece originally appeared in WSJ's MarketWatch