Incentives matter for job growth

Some predictable things happen when you subsidize companies to buy one type of input but not another. Bloomberg reports

Even though employment tends to lag behind investment early in recoveries, BofA’s Dutta said the current gap is “unprecedented” in the postwar era: Capital expenditures are expanding at an almost 14 percent pace, while job growth stays below zero, according to calculations he based on a six-quarter annualized change from the ends of the recessions.

In addition, the “unintended consequences” of policy changes indicate the government may “undercut its own principal aim of job creation,” he said.

While the tax bill President Barack Obama signed Dec. 17 allows businesses to write off 100 percent of some purchases in 2011, there’s no similar incentive to speed up hiring. The Fed’s commitment to keep its benchmark interest rate near zero for an extended period also facilitates lower-cost financing for machines.

The administration’s goal to double overseas sales of American-made goods is another plus for investment over hiring, Dutta said, since the U.S. export sector is capital intensive rather than labor intensive.