Supply Side Economics and the Lasting Effects of the 2008 Recession on Hiring Practices

Donald Trump has branded himself a champion of the Working Man. He claims that he can create jobs, more jobs, by applying supply side economics to give “job creators”, or large corporations, tax benefits and other incentives to remain in the U.S. or expand their operations here. I hypothesize that supply side economic policies designed to expand job growth will be more ineffective in the post-2008 economy than before due to a lean, efficient workforce born from hard cuts during the recession, and a reticence from employers to overreach in hiring and be forced to lay off more people in the event of a second recession.

Supply side economic policies function by reducing the regulatory and tax burdens on corporations, increasing their available stream of revenue, and theoretically giving them a greater chance to expand and hire new employees. The phrase “a rising tide lifts all ships” springs to mind. At a glance, this seems like sound logic. However, I think that the current business culture needs to be taken into account before it can be assumed that businesses will take all their profits and put it back into the company.

During the recession many companies were forced to reduce their workforces when the markets collapsed. The long and deep recession was a bottleneck event. Only companies that could become lean, efficient machines survived the recession and they took the lessons learned from those experiences with them into the post-recession economy. I think proof of this can be found in the percentage of people working multiple part-time jobs because they cannot find full time employment. Why hire a full-time employee with benefits when you can pay lower wages to a part-timer with no benefits? Even more, part-time employees are often easier to fire and would have lower severance costs. Companies are very aware of the liability of excess or under utilized employees and have kept hiring tightly in check post 2008.

Even though the recovery after 2008 was the quickest non-wartime economic comeback in history, growth is relatively slow and the markets still have lingering doubt over whether or not the gains made since 2008 are permanent or if a relapse is immanent. I think this mood is exacerbated by de-regulation of financial and banking industries, which has precipitated the last two significant recessions.

This is not helped by the mixed economic messages coming from the Trump Administration, which vacillate between complete protectionism and cautious participation in free trade with the caveat that the U.S. be the largest benefactor in any deal, which is a decided deviation from all previous modern foreign economic policy. Uncertainty is the bane of the stock market and employers are reticent to make large investments in labor because they are uncertain of the future of the economy. They are unwilling to risk the large liabilities related to employment if they will need to lay them all off in the near future.

With the combination of these two conditions, I believe that the efficacy of supply side economics will be significantly hampered. Already corporations are announcing that they will be using the tax benefits to give out bonuses, buy back stock, or fluff up their rainy day funds. I do not believe there will be above average job growth compared to the growth rate of the economy as a whole. There is too much uncertainty in the markets, and employers are too good at efficient work force management to grow quickly.