Payroll tax cuts and gross job flows

In the comments section to my last post a number of people argued that in the current recession firms simply don't have the sales to support a larger workforce so a small reduction in labor costs from a payroll tax cut isn't going to increase employment appreciably.

The argument sounds plausible but the premise is wrong – in fact, lots of firms are selling and hiring.  In July, for example (the most recent data), firms hired over 4 million workers.  Yes, 4 million.  Even in declining sectors like construction there were 346,000 new hires in July alone.  In the 12 months preceding July, firms hired 51.3 million workers.  The problem of course is that during the same time there were 56.6 million job separations (quits, layoffs, retirements) for a net job loss of 5.3 million.

Even though we are still experiencing a daily net loss of jobs it's important to remember that there are about 200,000 hires every working day  Lots of firms are hiring.  In order to increase employment a payroll tax cut need not shift firms "from firing to hiring" it need only increase the hiring rate of those firms already hiring or on the margin of hiring.

The data is from the JOLTs survey which releases more data tomorrow.  The uber-source on job flows is Davis and Haltiwanger and their extensive work with co-authors.  For a good, non-technical, introduction to this and related topics I recommend, The Natural Survival of Work,


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