World Economic Trend Analysis

Thursday, 19 August 2010

Creating Jobs Carries a Punishing Price

Mr. Fleischer, president of Bogen Communications Inc. in Ramsey, N.J., explains "Why I'm Not Hiring"

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). 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.

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.

Every year, we negotiate a renewal to our health coverage. This year, our provider demanded a 28% increase in premiums�for a lesser plan. To offset tax increases and steepening rises in health-insurance premiums, my company needs sustainably higher profits and sales�something unlikely in this "summer of recovery."

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.

Failed Policies

Obama, Geithner, Summers, and all the Keynesian clowns in the administration wonder why stimulus is failing.

All they need to do is pick up the phone and talk to small business owners. Actually, all they need to do is use a little common sense.

But No....

Instead of using common sense, they all think throwing money at problems will solve them. Then they need a way to pay for their helicopter cash drops, so they raise taxes.

Who do those tax hikes hit the most? Small and medium sized businesses.

Is it any wonder unemployment remains stubbornly high?

Addendum:

I received an interesting email from "David" a reader attempting to debunk Mr. Fleischer's reasons for not hiring. One of the items "David" mentioned is the idea that corporations are sitting on cash, something I have also debunked. "David" also challenged Mr. Fleischer's math on on healthcare.

Such arguments miss the entire point of the post.

It does not matter one iota if Mr. Fleischer is wrong about corporate sideline cash or anything else. What matters is Mr. Fleischer thinks he has sufficient reasons not to hire.

On that score I believe Mr. Fleischer is correct. Whether or not he can articulate reasons that others agree with is irrelevant. The pertinent fact is he is not hiring.

Moreover, numerous other small business owners think and act just like him. How do we know? Simple ...