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Hiring on hold

Facing an uncertain future and a mountain of regulations, small businesses lack the confidence to grow

Issue: "All tied up," Sept. 24, 2011

WASHINGTON, D.C.-Larry Diana is in the jobs business. His company, Express Employment Professionals in Greensboro, N.C., employs 10 people who work to put employers and job seekers together. At any one time, his company has 200-350 people placed with various clients, mostly small and medium-sized companies around North Carolina. "There's not a day goes by," he says, "that I don't place someone in a job."

Business is improving this year, but Diana is seeing a movement toward what he calls "more flexible staffing" among employers. More than half of the hires he helps facilitate now are not permanent positions but jobs on projects lasting less than a year.

Diana points directly at federal government policies as the cause for this trend toward flexible hiring. "There's so much uncertainty. [Small businesses] can't easily forecast what their costs will be in a year," he said. "When you reduce their confidence, they get cautious."

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This lack of confidence is pervasive and nationwide, and it helps explain why the unemployment rate remains stubbornly above 9 percent. In January, 54 percent of business owners in a Gallup poll said that their revenues would increase this year. But that confidence level dropped to 42 percent in a July poll. And most small business owners and the organizations that support them are not expecting any economic miracles in the aftermath of President Obama's post Labor Day jobs speech.

The reason? Washington's recent policies, according to Cynthia Magnuson of the National Federation of Independent Business, have worsened the three top concerns among employers: healthcare costs, corporate tax complexity, and increased government regulations.

For conservatives the healthcare battle has been lost for this Congress. And tax reform is such a highly partisan issue on a divided Capitol Hill that progress there seems unlikely. So, awash in federal red tape, job creators are placing their hopes (and their hiring prospects) on regulatory reform.

Don Barefoot, president of a Christian business organization named the C12 Group, calls the current regulatory climate "ankle weights on the nation."

"Few will purposely navigate the increasingly complex U.S. regulatory maze with the uncertainty, delays, cost, and potential litigation it brings," Barefoot said. "If business owners don't have confidence in what is going on in Washington, why should they put hard earned capital at risk? We need to drain the regulatory swamp."

That swamp has gotten deeper over the last three years. Currently there are more than 4,200 proposed federal rules in the approval pipeline. The amount of pending regulations impacting small business has increased more than 11 percent since 2009.

It already costs more than $10,500 per employee annually for the nation's businesses to comply with all federal regulations. Navigating the uncertain regulatory maze forces owners to devote more time to playing defense against the federal government with less hours available for expanding, said John Berlau, the director of the Center for Investors and Entrepreneurs.

Last year, according to the Congressional Research Service, the Obama administration issued 100 major rules, which are defined as regulations carrying annual costs of $100 million or more. That's the most major rules issued in one year since the Government Accountability Office started keeping records. There are 219 such economically significant rules pending this year. The biggest rule maker dragging down job creators is the Environmental Protection Agency. The EPA is currently considering hundreds of rules including ones to regulate construction and farm dust.

By the EPA's own estimates, permits for new greenhouse gas regulations would cost $125,000 and 866 hours per facility seeking compliance. Increased EPA regulations could cost the United States up to 1.4 million lost jobs and $141 billion in lost gross domestic product, according to the American Council for Capital Formation.

Fears over dust regulation and other rules prompted an Illinois farmer to confront Obama on Aug. 17. "Mother Nature has really challenged us this growing season," said the unidentified corn and soybean farmer at a town hall in Atkinson, Ill. "Please don't challenge us with more rules and regulations from Washington, D.C., that hinder us from doing that. We would prefer to start our day in a tractor cab or combine cab rather than filling out forms and permits."

Obama told the farmer, "Don't always believe what you hear."

But the EPA has indeed proposed regulating dust as well as noise pollution, cement, and water run-off. Combined, all proposed EPA rules could be the "most costly, burdensome, expansive set of job-killing regulations ever crafted," writes R. Bruce Josten with the U.S. Chamber of Commerce.

The president's rhetoric on his August bus tour of the Midwest did include pledges of regulatory reform. "Now they are having to talk about things they would have never discussed a year ago," said Tim Phillips, president of Americans for Prosperity. "I hope he is serious and not just trying to help himself politically."

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