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Why companies aren’t hiring more workers

The economy needs jobs to recover more quickly, but experts say employers are finding plenty of reasons not to say, 'You're hired.'
Image: Caterpillar excavators
The heavy machinery maker Caterpillar sold $14.23 billion worth of goods in the second quarter, a 37 percent increase over last year. It has added jobs, but the majority have been overseas.AP

With more than 14 million people seeking work in this country, economists would really like to be seeing employers adding hundreds of thousands of jobs to their payrolls each month.

Instead, we’ve had to settle for just a small fraction of that.

The economy added a paltry 18,000 jobs in June, according to the Bureau of Labor Statistics. The government will report employment figures for July on Friday, but already many are fretting that job growth will again be anemic.

Many companies are reporting that business is improving, but that’s not necessarily translating into new jobs. A survey of chief executives, released in June by the trade group Business Roundtable, found that 87 percent expect sales to increase in the coming six months. But just around half said they expected to add jobs during that period.

Even those who do hire appear to be very selective about it, as evidenced by the small number of new jobs being created.

So what’s stopping employers from adding jobs? Here are seven reasons:

They don’t have to.
Think back to 2007. Maybe one person in your office answered the customer phone calls and dealt with the e-mail inquiries, while someone else handled the walk-in customers. But then the recession hit and one of those people was laid off, while the other one started doing both jobs. That one person is still handling the dual load.

That’s happening all over the country. Worker productivity has soared in recent years as employees have been asked to take on more work — and have been willing to do so because the alternative was likely the unemployment line.

Now even if business is picking up, employers are hesitant to add more employees if they don’t have to. Some may be paying overtime to get a few more hours out of the existing staff, while others may just be asking employees to do even more each work day.

“One of the great benefits of the recession, to some companies, was that they learned how many … employees they could get along without,” said Loren Carlson, who runs the CEO Roundtable, a peer group for chief executives of small- and midsized businesses.

They’re scared to go first.
Lots of people agree that one of the big reasons we are still struggling through a weak economy is because people need jobs. Yet employers are scared to be the ones to stick their neck out and add more workers.

“Everyone says, ‘How can we have a recovery without jobs?' (But) until I start seeing my competitors add jobs, I’m not going to do it,” Carlson said.

The weak job growth itself may be spooking some employers.

“It tells a company that other companies aren’t hiring, and therefore I better hang back and not hire,” said Ken Mayland, economist with ClearView Economics.

Their business is elsewhere.
The heavy machinery maker Caterpillar sold $14.23 billion worth of goods in the second quarter of this year, a 37 percent increase over last year.

That type of business growth usually requires extra manpower, and, in fact, Caterpillar has been adding jobs. It currently employs about 6,000 more U.S. workers than it did a year ago.

But the company has added more than 10,000 jobs outside of the U.S. during the same period.

Caterpillar is in many ways indicative of other U.S. companies. The maker of construction and mining equipment is forecasting only moderate expansion in the United States, while its overseas markets — where it makes 70 percent of its sales — are looking much healthier.

“While there’s growth still occurring in the U.S., it’s certainly not as strong, particularly, as many of the growth or emerging markets,” said Jim Dugan, Caterpillar’s chief corporate spokesman.

Of course, it would make sense that rapidly growing emerging markets might have higher demand for construction equipment than mature markets like the United States. But Dugan said Caterpillar also blames the disparity in part on how various countries responded to the recession.

In China, for example, economic stimulus focused on shovel-ready projects translated into swift business for companies like Caterpillar, Dugan said. In the United States, Caterpillar lobbied hard for similar infrastructure improvements on the theory that they would create short-term jobs and help companies get their goods around faster.

“I’ll use China as an example. They have made significant infrastructure investments while the U.S. has lagged and not made those infrastructure investments,” Dugan said.

Their employees are elsewhere.
Mayland, the economist, recently asked the businesses who read his economic views to tell him why they aren’t hiring.

Among the reasons: Moving work overseas.

“Some say that the jobs have been outsourced and they’ll just never be coming back,” Mayland said.

They’re nervous.
Business owners are a gun-shy bunch these days. When asked why they aren’t hiring, you’ll often hear the word “uncertainties.” Those range from not knowing whether taxes might increase at some point to worries about how health care reform could add to employee costs in the future.

Running a business is always going to be fraught with uncertainties, but these days business owners are feeling especially on edge about taking any sort of risk with hiring, Mayland said.

You’re nervous.
Maybe you were going to buy a car, but then you started seeing how the stock market was slumping, or you heard more news about friends who weren’t able to find work. That caused you to think twice about making such a big purchase.

The fact that Americans are nervous about spending money is, in turn, causing companies to worry that they might hire a new worker only to find there aren’t enough customers to justify that person’s salary.

But again, that’s a chicken-and-egg scenario. Until companies start adding jobs, consumers may not feel confident enough to spend money.

They don’t want to lay people off again.
Mayland, the economist, said some employers — particularly those running small companies —told him one reason they aren’t hiring is because they don’t want to go through the nightmare scenario of cutting jobs all over again.

“They were laying off acquaintances and friends. Those cuts were so painful that they were unwilling to rehire out of fear that they would, at some point, just have to lay off again,” Mayland said.