Amidst all the recent talk about the debt ceiling and the national debt, two of the more discussed topics are financial regulation and job creation, with the latter even finding its way into debt conversations. No matter how we spin things, job creation can always work itself into the conversation. With unemployment numbers still high, getting the country back to work should be a priority for everyone.
For young professionals looking to enter the financial industry, the big question is whether or not the sweeping regulations of the new Dodd-Frank Act will impact jobs. Despite what opponents to financial regulation would have you believe, industry regulation does not lead to mass layoffs or the curtailing of job creation. In fact, studies have shown quite the opposite. When we look at the short term impact of regulation, we are only looking at one side. In order to determine the long term impact of job growth, we must look at all sides; in doing so, we will see that it is too early to write off regulation as a job killer.
Opponents of regulation, like the Heritage Foundation, want to paint a picture that these new measures are going to increase cost and stifle job creation or lead to job losses. This year, one of their senior research fellows testified before Congress that the current cost of regulation — which was at an all-time high — was threatening thousands of jobs. Politicians such as Rep. Jeb Hensarling (R-Texas) have echoed these sentiments, saying that the red tape punishes millions of job seekers. However, groups like the Economic Policy Institute (EPI) take a different approach. In their report, they examine a range of factors, including actual cost of regulation instead of estimated cost. Their conclusion is that these calls of doom from regulation are overblown.
The cost of regulation is often far less than the estimated cost. Moreover, the benefits often exceed the actual costs (page 10 of the report). During the housing boom, young professionals had a plethora of choices in the financial industry. Subprime lenders needed account executives and underwriters; mortgage brokers needed loan officers and processors. The more houses people wanted to buy, the more jobs needed to be created. The problem was that deregulation led to false hope, and now we are seeing the results. Starting in 2007, jobs in the subprime market began to disappear. This demonstrates that while deregulation got us short term job gains, it made for long term job loss.
With new regulations come new agencies, like the Consumer Financial Protection Bureau, and other offices created in Dodd-Frank. These new agencies and offices will be looking for the best and brightest in the country to fill positions. Banks and other financial institutions will need to hire the best and brightest as well, not just to deal with regulation, but also to think of new ways to do business. One thing regulation has done, as indicated in the EPI report, is increase innovation.
It is too early to rule out these new regulations as job killers the way some have. They will stabilize the financial markets; stable markets, in turn, foster growth and creation. That is how jobs are created. The short term gains may not be there, but we must look at the long term picture. If history indeed repeats itself, then these new regulations will lead to innovation and innovation to more jobs.
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