WSU researcher says wages, uncertainty among factors that hinder job growth

10/08/2013 12:10 PM

10/08/2013 12:10 PM

One message pierced the barrage of statistics and charts at Thursday’s Wichita Area Economic Outlook Conference: Next year looks pretty mediocre, but it could be worse if Washington doesn’t get its act together.

The conference, put on by Wichita State University’s Center for Economic Development and Business Research at Century II, attracted hundreds of business, government and community leaders eager for insight into the region’s future.

The speakers reviewed the local and national economies, the farm economy and the fallout from the Affordable Care Act – and made predictions for what’s likely to happen in 2014.

Nationally, Bill Dunkelberg, an economist with the National Federation of Independent Business, showed chart after chart of economic indicators drifting toward zero, with little to push them up.

He called for 2 percent economic growth, unemployment over 7 percent and modest inflation next year.

A consistent critic of the Obama administration, Dunkelberg sees more regulation coming down on business, hindering growth. And the government shutdown and hitting the debt ceiling, he said, will cut GDP and hurt confidence, further suppressing the forces trying to revive the economy.

What business needs, he said, is the confidence produced by agreement in Washington. A grand bargain between Democrats and Republicans to cut the federal debt would be the kind of thing to revive the economy, he said.

“Reducing uncertainty in Washington would be a great start,” Dunkelberg said. “Get the right wingers together with the left wingers and bash their heads together. That’s what leadership is about. And it’s not happening.”

Wichita area economy

Center director Jeremy Hill forecast that the Wichita area will add about 3,400 new jobs, a 1.2 percent increase, in 2014.

He said it’s been a bit of a mystery about what is holding back job creation, with different theories holding sway. It now appears, he said, that companies have been cutting costs in the face of slower sales, but haven’t been able to cut labor costs as fast as they would like. In the past, companies would freeze wages and allow inflation to erode their value, but inflation has been close to zero since the recession.

The result, he said, is companies have compensated by not hiring, or by outsourcing a function.

In Wichita, he said, the wage structure has long been high because of the size and unionization of the aircraft industry. That also has hindered job growth.

At this point, local businesses are not willing to take chances and spend more than what they absolutely have to.

Hill said moderate growth in the local jobs market will return only when certain conditions are met. Those include:

• General aviation sees consistent good news
• Workers, government and businesses are willing to spend more on training to develop a workforce that better matches the jobs available

However, he added, he’ll have to completely revise the forecast downward if the federal government hits the debt ceiling.

Most economists agree that failure to raise the debt ceiling would cripple the U.S. economy and have consequences around the globe.

Ag economy

The last few years have been extraordinarily good for crop farmers; although less so for livestock farmers, said Nathan Kauffman, economist with the Kansas City Federal Reserve Bank’s Omaha branch.

The big question that many observers ask is: Will the agricultural economy repeat the disaster of the early 1980s when thousands of farmers went bankrupt?

Certainly not in the next year, Kauffman said. But beyond that, conditions bear more watching.

What made the ’70s and ’80s so difficult is that farmers experienced an income boom caused by exports and then invested heavily in land and new equipment. That debt put them in danger when incomes fell and interest rates rose later in the decade.

Farmers today aren’t taking on nearly as much debt and interest rates aren’t nearly as high this time around.

But starting in 2014, Kauffman expects trends to become less favorable. Farm incomes will drop as prices fall, farmland values will fall, interest rates will rise, renewable energy mandates could be challenged, export growth will become more uncertain and foreign competition will increase.

A fourth speaker, Robert St. Peter, president and CEO of the Kansas Health Institute, reviewed the Affordable Care Act and its impact in Kansas.

He said that repealing the law, as many Republicans have proposed, would be complex and difficult, in part because of popular provisions, such as banning exclusion of children with pre-existing conditions, that have already gone into effect.

He also noted that health care costs have for decades been a top concern for businesses and for economists. It’s still too early, he said, to know whether the ACA will restrain the growth in health care costs. Recent moderation in cost increases, he said, might be the result of the still struggling economy, the ACA or other factors.

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