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Four Reasons Why Companies Are Still Reluctant to Hire

Eddie Seal | Bloomberg | Getty Images

The job market has slowly been improving, but anyone who has looked for a job lately knows that it's still far from easy to land a position.

Economists say there's a good reason for that: Employers just aren't that eager to hire.

"Nobody is enthusiastic about hiring," said Ken Mayland, an economist with ClearView Economics who often speaks with chief financial officers at large U.S. corporations and also works with small businesses. "Everybody is just sitting on their hands."

The lack of enthusiasm about hiring is surprising in some ways. Businesses have built up hoards of cash in the last five years and have largely been running their businesses with minimal staffs who are being asked to work harder. Worker productivity grew at a 1.9 percent annual rate from July to September, which some experts say is a sign that employers are reaching the limits of how much they can squeeze out of their existing workers.

Still, experts say they aren't hearing much talk about hiring. There were 3.6 million job openings on the last business day in September, according to the Bureau of Labor Statistics, not much changed from August.

"These companies are sitting on big stockpiles so they have the wherewithal to hire, but to a company I'm not (hearing anyone) saying, 'Oh yeah … we're looking to gear up,'" Mayland said.

The unemployment rate stood at 7.9 percent in October, as companies added 171,000 jobs. That's certainly an improvement over a few years ago, but it's not enough to quickly get the more than 12 million U.S. jobseekers back to work. The November jobs report will be released on Friday.

There have recently been signs that some of the most troubled pockets of the economy, such as the housing industry, are starting to see improvements. To some, that should be the sign that it's time to expand your business and hire more people.

"You would think that businesses would be salivating," said Joel Naroff, economist with Naroff Economic Advisors. "What more messages could you get that this economy is turning (and) that you should start doing things? And instead, they're running around like Chicken Little."

Here are a few reasons why.

They Are Uncertain

Uncertainty has been a big theme these last five years. Business leaders have at various times said they were uncertain about the recession, the fiscal stimulus programs, the recovery, the elections, the debt ceiling, the health care overhaul and the fiscal crisis in Europe.

These days, they're mainly feeling uncertain about the so-called "fiscal cliff," a series of tax hikes and government spending reductions to the tune of $600 billion that are set to take effect in 2013 unless Congress and the Obama administration can strike a deal.

That's got business owners worried they'll have to pay more taxes and investors fretting about whether capital gains tax increases will mean they take a major financial hit.

Federal Reserve Chairman Ben Bernanke also has warned that without a deal on the fiscal cliff, a term he coined, the economy could slow dramatically. But with a deal, Bernanke has said, the economy could perform well in 2013.

Naroff believes that the fiscal cliff is the biggest reason that companies have been hesitant to hire.

But a massive political squabble over spending and taxes is also a very effective reason for not hiring more workers even as more than 12 million Americans are out of work, he said.

"Business leaders like excuses for doing things that are unpopular. Everybody wants to blame somebody else for doing something that's unpopular. That's reality, right?" he said. "If you can blame the government for why you're not hiring, you'll blame the government for why (you're) not hiring."

They Don't Have To

Economists say many employers aren't really feeling that much pressure to hire new workers.

After all, many workers who have been able to hold onto their jobs these last few years will tell you that they are working harder than ever, either because business has picked up or because they are also taking on responsibilities for people who have been let go. And yet, not many people have received significant raises in recent years as wages have stagnated.

Because companies can push their employees to be more productive for the same or less pay, they don't have a great incentive to hire more workers. Instead, they're more likely to either push people harder or come up with technological solutions for getting more work done.

"All companies are operating very lean," Mayland said. "For many businesses, they're back up to the 2007 to 2008 levels of business activities, but what we find is they're doing it with significantly lower levels of employees."

Their Business Strategies Have Fundamentally Changed

James Paulsen, chief investment strategist for Wells Capital Management, said that back in the 1970s the first thing companies did in an improving economy was to boast about how they were hiring more workers and adding more factories.

"Now when a recovery starts the last thing they do is rush out and hire a bunch of people," he said.

Instead, employers will take their time adding employees, and work to figure out how much they can squeeze out of the workers and technology that they have.

And rather than talking about expanding, he said, they'll boast about "how much they're cut payrolls and how they're not going to build a thing. They're going to add more computers."

Paulsen thinks there's been a fundamental shift from believing that if you build good products, you could raise prices every year. Now, he notes, industries such as technology are facing consumers who expect prices to come down every year. That means adding to costs won't necessarily add to profits.

"We turned the CEO's world on its head," he said.

They're Risk Averse

The recession and recovery also may have made some businesses nervous about taking a gambit on a new product, market or industry. Experts say some worry that if they get optimistic and add staff or move into new lines of work, it will backfire if the economy recedes once again. Then, they'll face the painful prospect of cutting staff and resources.

"They're willing to leave some stretch opportunities on the table and, you know, kind of be satisfied with, 'Oh, this what we've got,'" said Mayland.

Mayland noted that businesses have gotten very creative in adapting to changing circumstances, technology and economic conditions. But they've done that by focusing on making profits for their shareholders, not by trying to do what's best for job or income growth.

"That's what business does," he said. "Businesses will survive and maybe thrive, but they will do that in a way that's not necessarily good for the macro economy as you and I measure it."

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