Free Markets, Free People

The Economy In An Anecdote

I think this entire article entitled “Why I’m Not Hiring” could qualify as the QOTD. It neatly explains why businesses are so reluctant to hire anyone right now.

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.

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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 … 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.

There is no grand revelation in Mr. Fleischer’s explanatory essay. Just hard cold reality: make the costs of hiring more expensive, and less hiring will happen.

Some may argue that just because Mr. Fleischer’s company isn’t hiring for these reasons, that doesn’t mean that other companies are refraining on the same basis. True, but what are the other possible reasons then? Logan Penza summarizes some of the arguments:

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.

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.

As Mr. Fleischer summarizes:

A life in business is filled with uncertainties, but I can be quite sure that every time I hire someone my obligations to the government go up. From where I sit, the government’s message is unmistakable: Creating a new job carries a punishing price.

Perhaps instead of punishing business, the government could get out of the way. Maybe then we could get some of that job growth we’ve all been looking for. Unfortunately, it seems that few in Washington are listening, or worse, that they don’t really care.

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41 Responses to The Economy In An Anecdote

  • Key point.. that 35% government cut is going to go through the roof with end of Bush tax cuts, Obamacare, etc.

  • This is all because of the “Evil Bush.”  He was the one who forced a new healthcare system on the country with new costs to business.  He is the one who gave us all those new financial regulations and that so-called “consumer protection agency” with it’s new mountain of paper work.  He even wanted new taxes on “carbon,” even using the EPA to thwart the slowness of Congress.
    Oh .. wait a minute .. that wasn’t the “Evil Bush” ..
    That was “The Won” .. our false saviour .. the guy without any executive experience .. Barack Hussien Obama .. the guy with the wife on a taxpayer-paid European vacation .. with dozens of Secret Service agents.

  • ” businesses who can’t cope with changes in the law are simply unfit to survive.”

    That is a literally true statement as it stands. However, businesses cannot cope with changes in the law until they know what those changes are. It will be some time before they know exactly what the changes due to new health care laws are. There is also the tacit assumption here that changes are good and necessary and that ‘unfit’ means undeserving or evil.

    • “Businesses who can’t cope with changes in the MARKET are simply unfit to survive”.
      I suggest that is the only correct formulation.  Changes in the law can force out any business that attempts to operate according to the rule of law.
      Of course, as you note, coping becomes FAR LESS possible when NOBODY knows what to expect, and the landscape a nightmare scene of shifting legal shapes, each a potential killer.
      We don’t want businesses who survive by “coping” with our economy becoming a Banana Republic; they are simply part of a criminal enterprise in that case.
       

    • The means to survive, in such an economy, pushes market entrepreneurs into becoming political entrepreneurs.
      IIRC this is called “economic fascism”.

  • Well another way to look at it is that Mr. Fleishcer manages to pay himself well over $500,000 a year so maybe it’s not the costs of the low level employees that need to be addressed…

    • Low level employees? You’re not making sense. Someone being paid $59,000/yr. is not a a “low level employee” in any economy that I’m aware of.

      And frankly, who cares how much Mr. Fleischer averaged in salary and bonus at one time? Whose to say he’s still making that much? And even if he is, what’s that got to do with whether or not the business can truly afford to hire more employees?

      Your argument appears to be that Mr. Fleischer should take a pay cut and just go ahead and hire some new workers out of the savings from his salary and bonus. The problem, of course, is that Mr. Fleischer could just quit instead and then where would that leave the company? How many CEO’s do you think could be hired from the outside for $423,000/yr (+1 employee!) or $346,000 (+2 employees)? Possibly a few mediocre ones, but that would create even more risk for the company.

      And how many employees should Mr. Fleischer personally fund? He can’t afford to hire more than 6 or 7 even if he gives up his whole salary, and if he did would that actually be enough to warrant an expansion? You, of course, have no idea, but seemed awfully sure that this must be the answer because Mr. Fleischer’s wages are entirely too high in your opinion.

      And what of the actual point of the article — i.e. that the uncertainties emanating from Washington are making it impossible to know how much more it will cost to hire another worker? Say Mr. Fleischer gives up his whole salary, hires 7 new workers, and then the federal government imposes more regulations, taxes and burdens on the company that make those employees even more expensive? Now the company is going to have to fire at least some of those new workers, so how was the situation helped?

      The problem is most certainly not with Mr. Fleischer’s pay, regardless of your jealousy.

    • “Pick the target, freeze it, personalize it, polarize it. Don’t try to attack abstract corporations or bureaucracies.”
      Welcome Saul Alinsky.
       
      Ahhhhhhh – Mr. Fleischer shouldn’t be looking at profits or losses and break-evens when making these determinations!  He should be taking pay cuts so he can hire more people!
      That should be the measure, how many more people can he employ, after all his job isn’t to make money, isn’t to earn the rights that come with running his own business, marketing a product or a service and having a damn good salary to pay him back for his efforts and ideas, his job is to PROVIDE EMPLOYMENT!
       
      It never occurred me to ask how much the guy was making, because he layed out the costs in such a way as to make it irrelevant.   Those costs would be those of  ANY company, hiring ANY employee, offering like benefits, in New Jersey, regardless of how much the CEO made.
       
      I’m constantly amazed at the ability of some people to take effectively pure math presented plainly in terms of costs and benefits and divert it to a discussion of envy.  Clue – It’s NOT Fleischer’s responsibility to create jobs just for the sake of improving employment.
      “Well, yeah, but it’s so much easier to blame fictional bogeymen then to address what the real businesses say.”
      In this case, I guess it was easier to name the fictional bogeyman Fleischer.

      • Ahhhhhhh – Mr. Fleischer shouldn’t be looking at profits or losses and break-evens when making these determinations!  He should be taking pay cuts so he can hire more people!
        That should be the measure, how many more people can he employ, after all his job isn’t to make money, isn’t to earn the rights that come with running his own business, marketing a product or a service and having a damn good salary to pay him back for his efforts and ideas, his job is to PROVIDE EMPLOYMENT!

        Look if you can’t follow along I’ll try to help you but you have to admit you have a problem.  He’s the one who says he wants to hire people to help his business.  Otherwise his whole argument is moot.  But he can’t hire because it just costs too much.   At the same time that he can’t come up with the $15k to pay an employees benefits he can manage to pay himself $550k.  Now if you can’t see some obvious math that could be done there to fix the “I can’t hire because it’s too expensive” problem then you really lack imagination.
        If Fleischer doesn’t want to hire anyone then he doesn’t have to.  But if he stops to pen an essay about how awful the government is for trying to provide social safety nets while he’s driving his beamer to the bank to cash the fat check then he desrves a healthy does of STFU.  He’s the problem. Not the government.  Or at the very least he’s the much bigger problem.
         

        It never occurred me to ask how much the guy was making, because he layed out the costs in such a way as to make it irrelevant.   Those costs would be those of  ANY company, hiring ANY employee, offering like benefits, in New Jersey, regardless of how much the CEO made.

        Again that lack of imagination.  It does actually matter, because without bloated executive compensation the company just might (definitely would) have plenty of cash left over to deal with those extra costs thus enabling Michael to hire the people who will actually make his company yet more successful.  See?  It’s really not that hard.  You aren’t seeing it because you don’t want to see it.

        • “…without bloated executive compensation…”
          Hmmm…  I think that proves you are an economic idiot.  On what predicate have you determined that this compensation is “bloated”?
          Maybe that is what the opportunity costs are for this executive.
          Maybe these are the necessary returns on capital investment he HAS A RIGHT TO DEMAND for his risks?
          I mean…what…besides your Collectivist zeal…are you using to determine what is “bloated”?

        • “Again that lack of imagination.” – why would I use my imagination to discuss the FACTS he’s presented?  What, I lacked imagination in not immeditaly exclaiming “What does that bastard make in take home!  I’ll just google his company and see!  How dare he blame the government for his decision not to employ more people!”

          Okay – as you said, it’s simple,  let’s look at what he’s discussing – the costs involved in hiring and keeping.  Not just to him, but to ANYBODY in New Jersey, again, paying as he pays, offering the benefits he chooses to offer.

          Again, REGARDLESS of what it costs him – any company, in New Jersey, offering benefits such as he does.  Meaning your wonderous ability to search his income up, and attempt to question his credibility or premise, while awe inspiring, is essentially useless, because it doesn’t detract from his point about the COSTS involved in employment. 

          Think about it, use YOUR imagination!  If you’d googled him and he turned out to pay himself $150,000 a year you’d have not a leg to stand on here, and the costs he’s outlined would REMAIN UNCHANGED.  His point would remain as solid as if you discovered he was paying himself $1,000,000 a year.  The costs are STILL the costs, the government requirements are STILL the government requirements, and his point still stands.
          It costs $74,000 a year economically for the woman to take home $49,000 even if the guy acts as a charity and takes the Ioccoa $1.00 salaray package.

          See, it’s really not hard.  So, do play on, you’re not just not seeing it, you have your eyes jammed shut and your fingers in your ears and are repeating “overpayed capitalist” like a mantra, as if his pay affects the COSTS to the company for her employ.
          Freeze it, personalize it, polarize it. 

    • Yup – because lord knows, we wouldn’t want him to profit from the business he took all the risk establishing.

      Anyway, Red Herring alert: Whether Fleischer took $500,000 or $50, it wouldn’t change the cost of a new employee.

      • And how about the taxes he’s paying to said imperial government on his own 550K?  If he gives that salary up, is he not taking some 170K from the beast?  They would shame him on both sides of the equation… if he keeps his salary he’s selfish, if he quits, he’s not being patriotic and paying taxes.
        Tlaloc – you are a fool.

    • Anyone who thinks he makes too much can open a similar business and compete with him.

      • Right.
        Just like Fleisher has to compete for Sally’s labor.  This is why he offers Sally benefits in addition to her base salary, not because the government “presses” him to do so, but because the labor market does.  There’s nothing wrong with that.  And if Sally is worth her salt, it is profitable to do this.
         
        Fleisher is correct in that it is entirely too expensive to bring on workers.  But overall his argument is pretty weak.  He carelessly throws around numbers like 33% and 74 for 44, but in reality, all Fleisher has to bitch about is the $4500 that his company has to match in medicare and SS taxes.
         
        All of the benefits and incentives that his company provides for Sally is all on him.
         
        Cheers.

  • “Unfortunately, it seems that few in Washington are listening, or worse, that they don’t really care.”
    I don’t think that is it.  I think you were closer here, “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.”
    I think those in Washington are looking after themselves and if that means selling out private sector jobs then so be it.  After all, they’ll just pass a program for all those lost jobs that will save the children, help the middle… yadaa… yadaa… yadaa…

    • The new “meme” .. tax the “really rich”
      If you taxed income above $1 million at 100 percent, you’d produce $860 billion per year
      .. with a deficit of $1.4 trillion projected without this revenue next year, there would still be a deficit north of $500 billion.

      • Then there would be the matter of that tax base disappearing.  If you taxed all income above $1 million at 100% then there would probably be an incentive to make more than $1 million somewhere in the neighborhood of zero.  At which point the $860 billion a year heads for that exact same neighborhood.

  • However, businesses cannot cope with changes in the law until they know what those changes are.

    A step farther is they cannot cope with changes that are said to be coming but they have no idea what those changes are going to be in the final version. Example-Cap and tax, tax increases , new hiring quotas.
    They are told these things are coming but they have no idea what they will be when they get here. I cannot even imagine walking into a bank with a business plan right now. Any plan you come up with will be obsolete before you could get the new business up and running.

  • It’s the old marginal cost versus marginal revenue deal.

    If another Sally ‘costs’ $74k, and generates $74k in revenue, then Employer A  is neutral to hiring her.
    If another Sally generates less than $74k, then the decision is obvious:  she goes or is not hired.

    If she generates more than $74k, in revenue then it’s in Employer’s interest to hire her.

    That’s it folks, that’s all there’s to it.

  • 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 … 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.

    Forgive the threadjacking but is exactly why blackmarket or illegal alien labor in most cases won’t go away with a guest worker program.  It costs $74,000 for domestic worker vs. $44,000 for the same wage to someone off the radar using the social safety net in place of benefits.  No way the government will let a guest worker’s price stay near the $44,000 mark.  They just won’t be able to help it.

    Hence there will still be a market for cheap blackmarket labor. 

  • If Fleischer truly wants to hire new employees but he is afraid that the Obama government will end up increasing the employer’s burden to match tax dollars, he should take advantage of the new HIRE act.

    The first, referred to as the payroll tax exemption, provides employers with an exemption from the employer’s 6.2 percent share of social security tax on wages paid to qualifying employees, effective for wages paid from March 19, 2010 through December 31, 2010.

     
    That would save him roughly $3k for Sally Twopointoh.  At least until 12/31/10.
    After that, he could determine if New Sally has brought – or has the potential to bring – income in excess of $74k making it profitable to keep her.  He could also tell Sally Revisited that he will hire her at $59k, but unfortunately, due to an uncertain business climate, he will not be able to offer her any health care benefits.  That would save him an additional $12k.
     
    So right there we’re saving over $15k.
    This is great, man… we’re working here… I love this stuff.  So we’ve whittled it down to Sally Nuevo’s base pay.  Which is, I gather from the article, Fleisher’s goal in the first place.
    That is, of course, she is willing to work.  According to the other WSJ piece I read today, there are plenty of companies dying to hire people (I guess they don’t share Mr. Fleisher’s fears) but the applicants just aren’t there, despite high unemployment rates.
    [sigh]
    Well goddammit, we’re back to square one.
    Someone get Sally on the phone and tell her Fleisher has a job for her and to get her lazy, teet-sucking, fat ass back to work.  Oh, and tell her that maybe she should walk or bike to work…
    You know, she’s going to need to stay healthy.
     
    Cheers.

    • “According to the other WSJ piece I read today, there are plenty of companies dying to hire people (I guess they don’t share Mr. Fleisher’s fears) but the applicants just aren’t there, despite high unemployment rates.”

      Ah, dude, you know what we’re seeing there – jobs Americans won’t do – heh.    Or perhaps jobs Americans can’t do and these guys don’t want to hire trainees?  There may another side to THAT coin too.  Looking for experienced Bridgeport operators and having out of work Computer Programmers apply….not so good.

    • “…he has been looking for $13-an-hour machinists since early this year.”
      If he wants to pay that little, maybe he should be looking to outsource to China.
      8.25 / hour to work at McDonald’s or 13 bucks to run a machine tool…LOL.
      I assume the Flying J is offering low end wages in rural areas that may not be as hard hit as California, etc.

    • We had a ton of very skilled machinists, tool and die makers, and other trades, when the rust belt went into it decline.  Those people lived in a band from Chicago to Buffalo and further east.  We don’t have the programs to create that kind of skill set any more.  But, without those skills, it is unlikely we can rebuild our manufacturing capability.  $13/hr for a skilled machinist seems quite low.  That was probably low for a tool and die maker in the 60’s.
       
      It is clear, we miss the vocational high schools.  Somehow, we began to believe everybody needed to go to college and that has simply increased demand and allowed college costs to rise to astronomical levels.    There is now a lot of debate on if college costs are a bubble about to deflate.

      • Rick – as an example, when I graduated from College in 1979 – and got my first salaried job, at $15500, my dad, a skilled union machinist for 30 years making GE engine parts, informed me that I was making $500.00 more than he was as my starting salary.  He was quite proud of that.  I’ll always remember the grin on his face.  His job was something he infrequently brought home with him.
        So, we have a time frame to work with – I calculate that out to mean he was making about $7.21 an hour, in Massachusetts, back in 1979 (40 hour weeks, 52 weeks a year with a paid vacation).   Somehow one would think that 30 more years would warrant something more than $6.00 in raises for that sort of job wouldn’t one.  I guess I could poll my brother who owns a small machine shop on the North Shore and see what his going rate for machinists is.
         
        “It is clear, we miss the vocational high schools.  Somehow, we began to believe everybody needed to go to college and that has simply increased demand and allowed college costs to rise to astronomical levels.    There is now a lot of debate on if college costs are a bubble about to deflate.”
        The college focus in High School – infuriated (and still infuriates) son #2 – he says the implication for those not going on to college from most of his teachers was they were doomed to be losers.

        • “he says the implication for those not going on to college ”

          It is a little more overt than mere implication, and has been since I was in high school.

  • Perhaps instead of punishing business, the government could get out of the way.

    As long as this is repeated, Democrats will keep on ignoring it.

  • Another reason Ari’s brother might not be hiring.

    • That’s pretty amusing.  If it’s true that his company gets a fair portion of its work from the government, then the effect of the government ‘getting out of his way’ might be pretty disastrous.  Be careful what you wish for, brother of Ari!

  • Perhaps instead of punishing business, the government could get out of the way.

    For Government that would be an admission of failure; all their programs and machinations are of no use.  IOW, their perception of themselves as the “betters” would be fatally challenged.  That cannot be allowed!

  • looker – “Pick the target, freeze it, personalize it, polarize it. Don’t try to attack abstract corporations or bureaucracies.”

    Welcome Saul Alinsky.

    Ever notice how this sort of “logic” never applies to libs?  Fleischer is supposed to cut his salary to hire more employees, but nobody would DREAM of suggesting that wealthy democrats take pay cuts and give the difference the charity.  Nobody would ever DREAM that they not live the lifestyle of the rich, famous and liberal.  For example, Chelsea’s multi-million dollar wedding is the toast of the liberal elite: the romance, the glitz, the glamour!  Never mind that the Clintons spent as much on the damned cake as many poor families spend on food in a year.  Michelle Mah-Belle is spending enough on her vacation to Spain to employ SEVERAL people at a good wage.  Jean-Francois and his yact, Algore and his mansions, Charlie Rangle and his rent-free apartments, etc., etc.

    Socialism is NEVER for the socialist.

  • Fleischer writes as if these extra costs for each worker have suddenly gone up, but in fact they’re no higher today than they’ve ever been.