Hiring Workers Too Expensive!
Continuing the discussion of the Unemployment Paradox, WSJ publishes an op-ed titled “Why I’m Not Hiring” from Michael P. Fleischer, president of a small telecom firm in New Jersey. He begins with a pseudonymous median salary employee he calls Sally:
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.
That’s pretty steep! And possibly outrageous, depending on what governments are doing with the money.
But it doesn’t actually answer the titular question of the essay. The answer, the next several paragraphs tell us, is that he can’t predict what additional burdens government will impose on him — except that they’ll surely go up — and that health care costs are skyrocketing out of control.
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.” We can’t pass the additional costs onto our customers, because the market is too tight and we’d lose sales. Only governments can raise prices repeatedly and pretend there will be no consequences.
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.
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?