Economic Event Horizon

A small business owner named Michael Fleischer opined in today's WSJ that it's just too expensive to hire people because the additional obligation cost of hiring a new employee is not guaranteed to be covered in additional profits.

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.

You know, Ezra Klein has been talking about a payroll tax holiday as instant stimulus for a while now, but Fleischer's argument is stupid:  payroll taxes are there for pretty much everyone.  33% is pretty standard.  Fliescher goes on to rage against "being conscripted as a tax collector" so he can't make changes to his "pay structure".  He concludes "Why bother?"

And even if the economic outlook were more encouraging, increasing revenues is always uncertain and expensive. As much as I might want to hire new salespeople, engineers and marketing staff in an effort to grow, I would be increasing my company's vulnerability to government decisions to raise taxes, to policies that make health insurance more expensive, and to the difficulties of this economic environment.

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.

So...yeah, business owners don't like government taxes.  Who knew?  The anti-tax, anti-government rhetoric is to the point where even basic economics are ignored in favor of Rupert Murdoch's paper getting a dig in against Obama and company.

Even if your taxes and benefits were zero there Andy, it would still cost you $59,000 a year to hire Sally.  It costs money to hire people?  Why bother?  And people go right along down the path of "failed economics class" in their analysis.

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.

Which is why we need serious economic stimulus, small business tax credits for hiring to offset these costs, andwe need to put money in people's pockets so that demand goes up, so that the profits for hiring additional workers are there because more goods and services are being bought.

Let me make this as simple as I can:  The.  Problem.  Is.  Demand.

No demand, no sales.  no sales, no profits.  Get it?  As Jim Joyner puts it:

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?

This small business owner is looking for a scapegoat.