Sally Go ‘Round The Want Ads

Michael Fleischer at The Wall Street Journal:

With unemployment just under 10% and companies sitting on their cash, you would think that sooner or later job growth would take off. I think it’s going to be later—much later. Here’s why.

Meet Sally (not her real name; details changed to preserve privacy). Sally is a terrific employee, and she happens to be the median person in terms of base pay among the 83 people at my little company in New Jersey, where we provide audio systems for use in educational, commercial and industrial settings. She’s been with us for over 15 years. She’s a high school graduate with some specialized training. She makes $59,000 a year—on paper. In reality, she makes only $44,000 a year because $15,000 is taken from her thanks to various deductions and taxes, all of which form the steep, sad slope between gross and net pay.

Before that money hits her bank, it is reduced by the $2,376 she pays as her share of the medical and dental insurance that my company provides. And then the government takes its due. She pays $126 for state unemployment insurance, $149 for disability insurance and $856 for Medicare. That’s the small stuff. New Jersey takes $1,893 in income taxes. The federal government gets $3,661 for Social Security and another $6,250 for income tax withholding. The roughly $13,000 taken from her by various government entities means that some 22% of her gross pay goes to Washington or Trenton. She’s lucky she doesn’t live in New York City, where the toll would be even higher.

Employing Sally costs plenty too. My company has to write checks for $74,000 so Sally can receive her nominal $59,000 in base pay. Health insurance is a big, added cost: While Sally pays nearly $2,400 for coverage, my company pays the rest—$9,561 for employee/spouse medical and dental. We also provide company-paid life and other insurance premiums amounting to $153. Altogether, company-paid benefits add $9,714 to the cost of employing Sally.

Then the federal and state governments want a little something extra. They take $56 for federal unemployment coverage, $149 for disability insurance, $300 for workers’ comp and $505 for state unemployment insurance. Finally, the feds make me pay $856 for Sally’s Medicare and $3,661 for her Social Security.

When you add it all up, it costs $74,000 to put $44,000 in Sally’s pocket and to give her $12,000 in benefits. Bottom line: Governments impose a 33% surtax on Sally’s job each year.

Because my company has been conscripted by the government and forced to serve as a tax collector, we have lost control of a big chunk of our cost structure. Tax increases, whether cloaked as changes in unemployment or disability insurance, Medicare increases or in any other form can dramatically alter our financial situation. With government spending and deficits growing as fast as they have been, you know that more tax increases are coming—for my company, and even for Sally too.

Paul Chesser at The American Spectator:

Fleischer doesn’t understand that he needs to wise up, figure out a way to call each new hire a “green job,” and make nice with someone tight with the Obama administration (or in it). Then everything he’s complaining about will be subsidized — maybe for a whole year! Otherwise the unemployed “Sallys” of the world are out of luck.

Derek Thompson at The Atlantic:

Here’s where Fleischer is absolutely right: it is ludicrously expensive to add workers. Here’s where he’s not right: the acting government isn’t really adding to that cost. Two-thirds of that $30,000 surcharge isn’t the Obama administration: $12,000 comes from health insurance (for which we pay no taxes), $3,700 comes from Social Security taxes he would not have to pay under the new HIRE Act, and $6,250 comes from income tax withholding at a rate that is lower than at any time in the last 20 years and would not change under the president’s proposed tax plan.

The key item here is the health care premium. It’s been well documented that rising health care costs have eaten away raises and depressed median incomes. That’s one reason why the Obama health care plan tries to push workers off employer-provided plans and pull them onto exchanges. Will the push-pull work? Depends on whom you ask. But I still don’t see how the current administration’s actions are making it prohibitively difficult to add workers.

Logen Penza at The Moderate Voice:

It’s those Evil, Greedy Corporations.

That’s the simple explanation most of the talking heads have for the continuing high unemployment numbers.  Those Evil, Greedy Corporations horde their money and refuse to hire anyone.  When they do hire someone, they don’t pay them enough, don’t offer them enough benefits, don’t pay enough taxes, pollute the planet, steal candy from babies, kick puppies, and make obscene gestures at your auntie.  Evil, Greedy Corporations are offered up as cartoon villains, detestable and vile and without any redeeming value.

The trouble with cartoon villains is that they are fictional.

[...]

The flat truth is no one is going to hire new employees unless there is some reasonable promise that the additional cost of the employee will be recovered through increased profits resulting from the new employee’s work.  That’s not “greed”, it is bare survival in tough economic times.  And all the recent additions to per-employee costs aren’t alone.  There is a seemingly endless well of new possible costs coming, including new environmental regulations, the possibility of a massive new “carbon tax”, and “card check” that promises to raise labor costs even further with exactly zero (at best) increase in productivity. Vague gestures towards a few thousand dollars of tax credits to stimulate job growth don’t even begin to cover the risks.

On top of it all, if you happen to be an oil worker on the Gulf Coast, your job is politicallly verboten.  Sorry about that.  Or not.

Only a crazy person would be eager to start large-scale hiring in this political environment.  Yet many anti-corporation zealots profess themselves outraged that the Evil, Greedy Corporations won’t get with the business of economic recovery.

They just don’t realize that part of the explanation lies in the mirror.  The excesses of anti-corporation policy and rhetoric (which is the harbinger of future policy) is sand in the economic engine.  You can’t be anti-business and then expect business to bail out the economy by expanding and investing.

It doesn’t work that way.

Michael W.:

Well, yeah, but it’s so much easier to blame fictional bogeymen then to address what the real businesses say.

Another argument I’ve seen advanced is that the marketplace is inherently uncertain, and that businesses who can’t cope with changes in the law are simply unfit to survive. There is a certain laissez-faire appeal to this argument, but ultimately it doesn’t make sense.

The fact of the matter is that the types of market risk that businesses can and do adjust to, aside from increased competition, are changes in demand and supply, natural disasters and war. The more savvy, efficient and customer-sensitive businesses do survive these sorts of uncertainties and ultimately enhance the economy when they do.

In contrast, when the government continually raises the costs of doing business in the first place (or threatens to do so), the only ones who really survive are either the politically connected or the very wealthy (yes, they are often the same thing). That doesn’t have anything to do with building a better mousetrap, as it were, or growing the economy. And it certainly doesn’t do anything to raise everyone’s standard of living. Instead, all it does is reward those closest to the rule-makers, thus creating more competition to be closest to the King rather than satisfying the marketplace. It is exactly the sort of crony-capitalism we claim to detest.

James Joyner:

Now, I’m sympathetic to this argument, although not so much to lumping together the cost of government and the cost of providing health insurance, which are only tangentially related.  If each new employee adds extensive marginal overhead costs — much less push the firm over a threshold where they become subject to additional government mandates — then it’s very difficult to get the marginal gain in productivity necessary to justify to hire.

But, presumably, his competitors face exactly the same pressures.  And, surely, there has to come a point when additional hiring pays off despite the marginal costs?

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