The Fed has done all it can to signal that the days of easy money may be coming to an end soon. For the most part, the market has priced in a modest rise in interest rates going into 2016. That is seen as a good sign for some investors seeking passive sources of income in the form of bonds and other debt instruments – principally the legion of baby boomers set to retire over the next 10 years.
On the other hand, low-cost financing enabled by quantitative easing has driven employment growth over the past decade, as more active investors seek returns in private equity. But the real question going forward is whether business investment and job growth will continue as passive investments become more attractive.
From my personal standpoint, the past eight years have been a wonderful growth opportunity. Many of my business partners and colleagues have found ample financing to expand their businesses and invest in new assets. For me, that has meant I was able to enter the television broadcasting business and acquire seven full-powered broadcast stations over the past three years. Others who found themselves in an opportunistic position to acquire assets have also fared well.
One of the major factors in my decision to build a television platform, aside from growing personal wealth, was to develop opportunities for young people who have not been traditionally exposed to careers in media. To that end, I established the Howard Stirk Holdings Journalism Foundation at Coastal Carolina University in South Carolina this year, which will help pay tuition for about 14 college students interested in media and broadcast journalism. It will also provide internships throughout my television platform in five states to these people, with the goal of hiring them upon graduation.
Looking forward, the major risks in terms of the success of this initiative have surprisingly been: the Affordable Care Act employer mandate and the minimum wage increase. Throughout my media career, we have engaged in the practice of hiring young people just out of college or trade school to work in our businesses. Many of them have since gone on to have successful careers in media and other industries. But faced with the employer mandate, which requires small business owners to provide health insurance coverage to full-time employees, it has become significantly more difficult for us to offer full-time jobs to entry-level employees. For the most part, entry-level employees initially add very little in immediate value to a firm. Of course, over time they can gain the skills necessary to perform effectively – a critical process that we highly promote and endorse. But with employer mandate and minimum-wage hikes looming, we face increasing pressure to hire seasoned, skilled employees rather than entry-level workers in order to justify the added cost.
These added investment costs are likely to compound the dampening effects of the end of quantitative easing on business investment. With labor force participation so weak as it is currently, entry-level employment seems to be one of the logical places the country needs to look to find access to labor – albeit not skilled labor. Some people may argue that the solution to America’s economic problems lies in addressing the lack of middle-class jobs. But think about it. Those jobs don’t just grow on trees. As companies grow, especially small businesses, their employees start to grow and become more productive. That productivity, in turn, drives wage and income growth organically.
While the ACA and mandatory minimum-wage increase are well-meaning ideas, they will not ultimately solve the problem they are trying to solve. The initial CBO data estimated that the ACA alone would decrease job growth by almost 2 million jobs in 2016 and more than 2.5 million jobs in 2017. Industry surveys conducted by several of the Federal Reserve Banks have indicated that more than 16 percent of businesses numbers of businesses would reduce employee hours below full time to avoid the employer mandate, or hire a significant proportion of part-time employees going forward. Other firms said they would reduce hiring and look for alternative – primarily capital investments – to drive productivity at the lower end of the wage scale. According to the American Action Forum’s regression study on the labor market effects of Obamacare, the employer mandate will reduce employment by small businesses by more than 350,000 workers, and it will cost workers in excess of $22 billion in decreased wages as higher premium costs are passed on to employees. Almost all of these adjustments would occur in the lower-skilled “commodity” range of employment, which typically consists of the most vulnerable labor force participants.
The minimum wage is not, and never has been, a ceiling on earnings for most Americans. It is usually just the bottom rung on a ladder that increases as experience, skill and education are acquired over a lifetime of work. In order to assure that more Americans can enter the labor force and get on the ladder to success, the government should consider reducing the burden on small business by getting rid of the employer mandate under ACA, and keeping minimum-wage increases in line with a realistic evaluation of worker productivity at the entry level. This would not only offset some of the likely damping effects of the end of QE on investment, but also provide a solid engine for robust job growth going forward.
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