The economy is growing strongly, so why is nobody hiring?

The latest data show growth hit 3.4% in the third quarter of this year, faster than expected. Yet during that same quarter, the economy only added about 50,000 jobs per month — basically flat in an economy of 330 million people.

Betting markets are forecasting a small uptick: 70,000 last month, less than population growth, in a supposedly sizzling economy. The puzzle is low hiring combined with unemployment at only 4.2%, where it's been for pretty much a year and a half, while jobless claims are actually near historic lows.

In other words, companies aren't firing workers; they're just not hiring new ones. That’s odd since booming GDP usually spawns jobs like mushrooms after rain. The reason could be artificial intelligence — "super intelligence,” if you didn't get the memo.

The theory is that AI isn't crushing jobs by the millions, but it’s encouraging companies to do more with the people they've got because the technology is providing massive productivity gains. That means firms are delaying new hires.

The first casualties are recent college grads, especially those destined for America's cubicle farms. An August Stanford study found that employment among 22- to-25-year-olds in AI-exposed occupations was almost 20% below low-exposed jobs, with that gap up by one-third in the last year.

Meanwhile, experienced workers have no gap — just the new hires. So it’s junior programmers, administrative assistants, entry-level analysts and the army of recent graduates whose job was to rearrange PowerPoint to entertain middle managers.

This is creating an interesting labor market where experienced workers are valuable because they're actually more efficient with AI, since it’s a force multiplier. But for those with no industry expertise, it’s multiplying zero, which means nothing.

That means new graduates can't get their initial workplace experience because AI replaced them before they even showed up. So, AI's not taking all the jobs, but it is taking the first rung of the career ladder in certain sectors.

We've seen this movie before. In 1900, half of American workers were employed in agriculture. Along came tractors and combines, and today it's less than 2%. Yet America didn't end up with 38% unemployment back then because the new machines freed agriculture workers to make cars and airplanes, and eventually to write software, be personal trainers and fill other jobs.

It was the same story when computers eliminated typists, bookkeepers and clerks. Millions of jobs were simultaneously created in software, telecommunications, online commerce and fulfillment centers.

Technology doesn't simply eliminate work. Rather, it makes workers more productive, lowers costs, increases purchasing power—so customers buy more stuff—and opens opportunities that didn't exist. The entire Keynesian notion of aggregate demand is a fallacy because humans have unlimited wants.

There will always be demand for more products and services, including things that haven’t been invented yet. The catch is that those new jobs don't appear automatically. Entrepreneurs have to create them, which is why Steve Jobs was such a visionary for inventing the smartphone.

Unfortunately, the creation of new enterprises is where governments enter the story. Starting a business or hiring your first employee can mean licenses, zoning, permits, tax registrations, insurance mandates, payroll compliance, labor-law restrictions and more. It’s an obstacle course trying to crush the next wave of jobs.

These matter most to small companies, precisely from where the next generation of jobs should come. New business establishments already create roughly 4 million jobs a year. But imagine how much faster that’d be if starting a business or hiring an employee was like ordering a T-shirt on Amazon.

The solution isn't to ban technology any more than it was to ban tractors or electricity. It's to unleash tomorrow's entrepreneurs.

Slash occupational licensing, payroll taxes, employment-law complexity, and strip away unnecessary permits and zoning. Make it easy to start a business, experiment and hire the first employee.

Technology has been eliminating jobs for thousands of years. In fact, that's how we became rich — the industrial revolution wiping out farm laborers. But what we didn't have in 1840 was an empire of taxes and regulations roadblocking millions of new jobs.

If that doesn't change, this time will, in fact, be different.

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Peter St. Onge, Ph.D., is senior economist and E.J. Antoni, Ph.D., is chief economist at the Heritage Foundation.

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