Tuesday, June 25, 2013

Why Employment Problems Aren't Going Away

Suppose you had a business that would improve revenues by $ 60,000 per year if only you could add one additional employee.  Should you add that employee?

That depends upon what the employee costs.  It does not depend upon what you pay that employee.  Is there a disconnect here?

Yes.  What an employee costs in modern America is a far, far greater number that what an employer might pay that employee.

If you hire an employee these days, the costs, beyond salary, are enormous.  In some states these extra costs can make the overall costs nearly double the wage or salary that the employee is paid (before tax).  Why?

You can begin with social security taxes, medicare taxes and workmen's compensation.  If the company offers a health care insurance plan, you can add that in.  Under ObamaCare, you must add something in for health care insurance. 

What about complying with various federal rules?  OSHA?  Disability Laws?

What about potential lawsuits for "protected" employees?  If you hire females, minorities or anyone over the age of 50, you must reserve or insure against lawsuits (regardless of whether you are likely to win or lose such lawsuits).  Just defending yourself is expensive.  Often the litigation involves activities that take place between employees away from work and during non-work hours.  That is how absurd the "protections" are for employees.  But, the point is, they are costly to the employer.

Imagine that the employee who can help you increase your revenues by $ 60,000 per year requires a salary of $ 45,000 per year.  Whether you hire that employee will depend upon all of these other costs that whittle away the $ 15,000 margin of profit.  If your business is located in California or New York, the "extra costs" typically exceed $ 25,000 per employee.  At $ 25,000 in extra costs, the total costs to an employer become $ 70,000.

Would you pay $ 70,000 to add an employee that could increase your revenues by $ 60,000?

It's worth noting that the "extra costs" are relatively less for highly paid and highly skilled employees, which explains what so many high income Americans don't care if low income employees are priced out of the market by these extra costs.  Greenwich, Connecticut votes left.  For good reason,  Practically no one who resides in Greenwich is priced out of the labor market by these "extra costs."

The losers in this story are the lower skilled employees, the minorities, the single moms and older workers.  These policies that encourage lawsuits and saddle employers with health care costs, retirement costs, unemployment costs and the like dramatically reduce the employment prospects of "protected" employees.

No wonder employment is growing at the slowest rate in American history during a period of economic recovery.  Don't expect things to get much better.  This is a micro problem, not a macro problem.

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