Last Friday the Bureau of Labor and Statistics released its monthly jobs report showing that the U.S. economy shed 85,000 jobs in December, but due to the fact that 661,000 individuals left the labor force, the unemployment rate stayed at 10.0%. The Obama administration again spun the report by stressing that the rate of job loss continues to decline. But as Heritage fellow James Sherk explained last year, it is not job losses but lack of job creation that is driving our double digit unemployment rate.

Unemployment is unlikely to drop significantly until entrepreneurs increase investment in their ventures. However, surveys of business owners show that they do not plan to increase hiring or investment in the near future. But as Sherk and Heritage’s Rea Hederman note in their analysis of the latest jobs report, firms still are not ready to hire:

Chart 2 shows responses from the monthly National Federation of Independent Business (NFIB) survey of small and independent business owners. It shows that business owners have put their expansion plans on hold. Only 16 percent of businesses plan to make capital investments in the next three to six months, just half the rate before the recession. Unsurprisingly, hiring has also stalled. More small business owners now plan to cut jobs than to increase them over the next three months.

As long as entrepreneurs remain skeptical about their expansion prospects, job creation will remain low and unemployment unacceptably high. The NFIB asked small business owners about the single most important problem they faced. Their three most common responses were poor sales (32 percent), taxes (24 percent), and government regulations and red tape (11 percent). While Congress can do relatively little about poor sales, it has direct control over both the tax and regulatory burden businesses face.

To encourage small business to start hiring again, Sherk and Hederman recommend:

  • Pass legislation placing a moratorium on any tax increases until unemployment falls below 5 percent;
  • Rescind the unspent “stimulus” spending to reduce the deficit and allay entrepreneurs’ concerns about future tax increases;
  • Not vote on the financially harmful cap-and-trade or card-check proposals in this session;
  • Prohibit the regulation of CO2 under the Clean Air Act, which would place another burden on small and medium-size businesses;
  • Cap punitive damages, limit the ability of lawyers to file class action lawsuits, and prevent jury shopping to obtain favorable verdicts;
  • Repeal Section 404 of the Sarbanes-Oxley Act;
  • Reduce energy costs by reducing the regulatory burden on domestic energy production; and
  • Suspend the Davis-Bacon Act until the unemployment rate falls below 5 percent, stretching federal construction funding further and enabling small construction contractors to bid on federally funded projects.