Writing in the Opinion section of the Wall Street Journal, business owner Michael Fleischer explains Why I’m Not Hiring.
Fleischer explains that for one of his associates to take home $44,000 + $12,000 in benefits, it costs his company $74,000, much of that difference coming from some sort of tax or government program. His conclusion:
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.
While Fleischer’s point is well-taken, I have two things to add.
First, I was struck by the number of things that his company provides or pay.
Payments to government: Social security, state unemployment insurance, Medicare, New Jersey income tax, Federal income tax, Federal unemployment coverage, disability insurance, workers’ compensation.
Costs incurred by company/associate because of government or tax policy: Employee/spouse health insurance, dental insurance and life insurance.
All of these, with the exception of Federal and State income taxes could be provided privately. For example, there are several ways unemployment insurance can be provided privately. First, people can self-insure by saving up an emergency fund. Second, if the risk was still great enough, insurance companies would offer unemployment insurance for us to buy. Perhaps that would be something they would bundle in with a whole host of other insurance products and create versions of it that might work better for us.
For example, someone who follows responsible savings habits and establishes a 1-year emergency fund might decide to buy an unemployment policy that kicks in after 1-year.
Regarding health insurance, employers provide it and employees choose to accept this because tax policy and company greatly favors this arrangement. The company pays $7,000 for what the employer views as $10,000 in compensation and the employee views as $15,000 – $20,000 compensation.
The employee views this as $15,000 – $20,000 in compensation because if the employee chooses to buy health insurance on the open market, most companies won’t increase compensation by an amount equal to what the company pays for the employee’s insurance.
Perhaps, the associate could find better deals that better suit their personal preferences, but they choose not to because they are either forced to fund the government solution just for the privilege of being employed or the cost difference driven by the tax policy is great.
Second, I was also struck by the gap between the what employees cost a company and what the employees are willing to for. His associate needs to add $74,000 of value before creating a job that will provide the associate with $56,000 of pay and benefits.
In minimum wage discussions, we always focus primarily on what the employee takes home and we say things like, “if we raise the minimum to $8/hour, then the associate has to produce $8/hour worth of value or more to be hired.” That’s too simple. With all the add-ons, from the company’s perspective, it’s really more like $10 – $12/hour.