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After Bernanke and Cook, Long-Term Job Growth Takes A Leap of Faith

The Exchange

By Gary Burnison

On May 22, Ben Bernanke testified before Congress, and said, “What we are looking for is increased confidence that the labor market is improving and that that improvement is sustainable.”

The day before, Tim Cook, Apple’s CEO answered questions on his company’s ability to maneuver in avoiding paying taxes by not repatriating money earned outside the U.S.

Bernanke’s statement signaled that since QE3, which started in September with the $85 billion per month bond buy-back program, the economy has added an average of 193,000 jobs per month, compared with gains averaging 141,000 over the previous six months.

Bernanke noted, “Despite this improvement, the job market remains weak overall.” His message is that the Fed alone can solve the problem of long-term job growth.

So, the Fed has stated that it will keep “investing” billions every month until the U.S. reaches an unemployment rate of 6.5%. The Fed started this program in September 2012 when unemployment was at 7.8%. So, we have dropped .3% in seven months, with the unemployment rate at 7.5% as of April. If we were to continue at this current rate of .3% point drop every seven months, unemployment would reach 6.5% in about 28 months – or September 2015.

Back to Tim Cook. In his testimony, he argued for tax simplification. It was reported that Cook said that an overhaul should be revenue neutral, eliminate corporate tax expenditures, lower overall tax rates and make it easier to bring money back from overseas.

He suggested a top corporate tax rate in the "mid-20s" and a repatriation of profit overseas in the "single digits."

Cook said, "I have no current plans to bring them back at the current tax rate." Apple has more than $100 billion overseas.

Would CEO start hiring?

So, let’s pretend that Congress plays along with Bernanke and Cook. Congress ends austerity, and simplifies and overhauls the tax code. Would CEOs hire? My answer is that based on my face-to-face meetings with CEOs across the globe, it would take a “leap of faith.”

CEOs with more money would use it to in a combination of return to shareholders and investment in the business. The money to shareholders would trickle into the economy and can result in more jobs. The investment in the business will result in more jobs – but, again, it is a bit of a leap of faith, that CEOs will hire.

There are a few things counterbalancing companies using more cash for jobs: 1) access to capital has not proven that it will necessarily result in hiring; 2) technology is disintermediating jobs; 3) people are working longer lessening opportunity for new and younger workers; and 4) there is a lack of consumer demand.

Access to capital: The reality is that with extremely low interest rates, CEOs have easy access to capital to expand business and hire more workers. Recent history shows that even with easy access to capital, companies are not hiring in droves.

Technology: I have noted that we’re in a “Jetsons economy” – meaning technology is just massively disintermediating jobs. Ernestine, the phone operator character Lily Tomlin played on Rowan & Martin’s Laugh-In during the 60s, was replaced by a Skype version of George Jetson’s videophone run by software.

Starting with phone operators, to farming, to factory jobs, to cashiers, to even toll booth operators – technology has cut jobs.

Older workers staying longer: According to the Department of Labor, older workers are staying on longer and will continue to do so. I call this the “no room at the bottom” syndrome. It is a contributing factor of high unemployment rate among younger workers. The overall jobs needs to increase.

Lack of consumerism: CEOs at the Fortune 1000 level really won’t increase hiring unless they have a clear vision in economic forecasting – some of that is influenced by policy. But, we need real consumerism. Without consumer demand, hiring will not necessarily increase.

So, how can we create significant macro-level job growth?

One way is to find new solutions to our biggest issues. In 2006, President Bush re-ignited an energy independence movement in the U.S. declaring, "America is addicted to oil." At the time, he set the goal of replacing 75 percent of the nation's oil imports by 2025 with ethanol and other energy sources.

That challenge put America to work to find new solutions. Hydraulic fracking has emerged as hot growth industry. Reports reveal that the Obama Administration expects that hydraulic fracking could create more than 600,000 jobs by the end of the decade. The U.S. has always found a way to take it greatest challenges and turn them into opportunities.

Of course, if Congress does approve programs to rebuild decaying infrastructure, it will create jobs. But, it is long-term and sustainable.

Government works programs can also help. Plus, we need to build underdeveloped markets to drive borderless consumption. Parts of the world without electricity and phone service can’t build economies, nor consume products.

Unlocking Congress and unlocking overseas profits is not a guarantee to long-term job growth – but it is a real start.

Gary D. Burnison is CEO and board member of talent management firm, Korn/Ferry International. He is a New York Times best-selling author of "No Fear of Failure" and the most recent bestseller, "The Twelve Absolutes of Leadership."