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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?

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About James Joyner
James Joyner is the publisher of Outside the Beltway, an associate professor of security studies at the Marine Corps Command and Staff College, and a nonresident senior fellow at the Atlantic Council. He's a former Army officer and Desert Storm vet. He has a PhD in political science from The University of Alabama. Views expressed here are his own. Follow James on Twitter.

Comments

  1. Dave Schuler says:

    although not so much to lumping together the cost of government and the cost of providing health insurance, which are only tangentially related.

    Two-thirds of the money spent on healthcare comes from tax dollars.  Sounds like more than a tangential relationship to me.

    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?

    Only if he has no overseas competitors.  If he has European competitors, they pay a third as much for healthcare insurance as we do here (at the highest).  If he has Chinese competitors, not only are their wages a fraction of those here, there’s precious little in the way of deductions for social insurance or healthcare.

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  2. Steve Plunk says:

    I doubt this is nearly as big of an issue as the overall economic picture but it does illustrate the costs businesses face that most people don’t ever think about.
     
    While this person’s competitors face similar costs there comes a point where passing these all on to the consumer forces the consumer to make different choices.  If the product or service being sold becomes too expensive the consumer will eventually make the choice to seek alternatives or not buy at all.

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  3. JKB says:

    And, surely, there has to come a point when additional hiring pays off despite the marginal costs?

    Well, this is the prisoner’s dilemma we are in.  The point where additional hiring occurs when the lack of additional employee negatively impacts the sales and revenue.  This doesn’t occur until the market improves, which is tied to improved employment.  Hovering around this like a pack of rabid hyenas is the government.

    What the employers can’t discern right now is if they move to invest in new employees how will that open them up to the government taking bigger bites out of them through higher taxes, additional healthcare mandates, and the ever present confiscation of profits deemed to be excessive all the while they are tied up with a not-yet-productive employee.  So they spend all their time watching the circling hyenas, preparing for attack rather than building for a future.  Now if the hyenas were to back off to over the hill of a while, the employers would start investing in the future and when the hyenas return the employers would have some meat to toss them to keep them at bay.

    It is the classic extortion racket problem.  The victim hits a snag and can’t pay so the thugs turn the screws.  The victim falls further behind until they thugs take over, bleed the victim dry then fire bomb it to collect the insurance.  Normally, for government this isn’t a problem as they have many, many victims but in a deep recession like ours, the whole neighborhood can’t pay and arson will just destroy any hope of future payoffs for the politicians.

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  4. legion says:

    I’d really like to see a similar breakdown on senior employees (like Fleischer) at the same firm. If this Sally person is a “median salary person”, then he, as president, doesn’t make more than around $150k, right?

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  5. An Interested Party says:

    re: JKB Monday, August 9, 2010 11:57

    So government is nothing more than an extortion racket…say, why not hire some hitmen to take out these big time gangsters…

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  6. Tlaloc says:

    I’d really like to see a similar breakdown on senior employees (like Fleischer) at the same firm. If this Sally person is a “median salary person”, then he, as president, doesn’t make more than around $150k, right?

     
    This.  Michael makes close to 600,000 a year in salary and bonus according to this:
    http://www.companypay.com/executive/compensation/michael_p_fleischer_548704_BOGN.asp
     
    So if he took a 50% pay cut (leaving him merely making almost 10x the median) he could hire another 6 serfs valued employees.  I weep for the guy.

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  7. MKS says:

    No, “median” simply means that approximately 50% of the employess make less than Sally’s salary, and approximately 50% make less.  If 50% earned $43,000, 49% earned $61,000, and the president earned $5,124,689, then Sally’s $59,000 would still be the median. 

    “Mean” and “mode” are other statistical measures of central tendency in a data population.  We usually say “average” instead of “mean”.

    Also, if the president is the guy raising the money and taking the financial risks to enable the rest of the folks to earn their $43,000-$61,000 by risking only their year of effort, he may be well justified taking home $5,124,689 some years.

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  8. Tom Mathers says:

    @ tlaloc:  your attitude, via your brief comment/post, is EXACTLY what is wrong with this country, with Obama, and with the increasing class warfare.  why the EFF should the guy who presumably built the company with his own money, time, risk, etc. take ANY pay cut?
    Dollars to doughnuts you are a public employee.

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  9. legion says:

    Tlaloc: Thanks, that’s exactly what I was thinking.
    MKS: What exactly does that mean – raising the money and taking the risks? If that company is publicly traded, then as president, he’s just another employee. Also, even if he did build it with his own stake, exactly what risk would he taking now by bringing his & his employees’ salaries into some sort of relation? I am certain Fleischer has made his initial investment back several times over (with just one years’ salary), and that even if the business failed, he would still come out vastly ahead – unlike any of his employees. Again – what risk is he taking?
    And Tom: What justifies Fleischer potentially taking a pay cut? Your willingness to engage in class warfare is shown by your presumption that his salary is a figure handed down From Above, and inherently justified by the fact that he’s already wealthy. Where did his pay rate come from? Some percentage of the company’s profits, I assume. If the company is making less now than it used to, then I put it back to you to justify why he SHOULDN’T take a cut. But rather than take on that responsibility, Fleischer – and executives all across the country – blame their workers for being overpaid.

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  10. Stan says:

    The problem is never too much money paid to stockholders or overly generous compensation to top executives.  It’s always the awful government making employers pay Social Security and Medicare taxes and lucky duckies like Sally demanding extortionate salaries.  Clearly we need to undo the Great Society and the New Deal.  Then everything will be as right as rain.

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  11. John Cole says:

    Some of us were arguing during HCR that they should include the cost of benefits on pay stubs so people understand how much of their salary is being eaten up by increasing medical costs.

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  12. sam says:

    why the EFF should the guy who presumably built the company with his own money, time, risk, etc. take ANY pay cut?

    Actually, he didn’t. He was named president by Bogen in 1997.

    Dollars to doughnuts you are a public employee.
     

    Don’t know about his being a government employee, but Bogen has prospered as a result of government action:
     

    One good way to break into the Israeli market is through a joint venture with an Israeli company. Funding for such projects is available from the Binational Industrial Research and Development Foundation (BIRD). The United States and Israel established BIRD in 1977 to fund joint U.S.-Israeli teams in the development and subsequent commercialization of innovative, nondefense technological products from which both the Israeli and American company can expect to derive benefits commensurate with the investments and risks. Most grant recipients are small businesses involved with software, instrumentation, communications, medical devices and semiconductors. BIRD funds projects in 33 states and the District of Columbia.

    Since its inception, BIRD has funded more than 740 joint high-tech R&D projects through conditional grants totaling more than $210 million. Products developed from these ventures have generated sales of $5 billion, tax revenues of more than $700 million in both countries and created an estimated 20,000 American jobs. Many New Jersey companies, including Princeton Video International, IDT Corp., Bogen Communications, Telenex Corporation and Universal Sonics, have taken advantage of this opportunity to reduce the risk of new ventures and tap into the deep pool of Israeli talent through the BIRD program. Companies in New Jersey have shared over $4 million worth of BIRD grants with Israeli firms since the program started.

    Bogen Communications created a call interceptor with Artuv Communications and Software. Bogen was referred to Artuv through another Israeli company they did business with and the collaboration has been extremely successful. The product, now on the market, gives the user the option to store a message or has the ability to bypass the unit by hitting any digit on the keypad. The call interceptor also gives the user the option to record both a day and a night message that can be used, for example, during the work day or after hours. The system catches a call as soon as it is entered, plays the greeting and allows users to reach other lines by punching in the extension. “All in all the collaboration worked out pretty good,” said John Veneziali, an application engineer at Bogen. “Artuv worked mainly on the software while Bogen tackled the hardware issues. If we found a bug, we would go to Artuv for feedback. Overall, this was very successful,” added Veneziali. (http://www.jewishvirtuallibrary.org/jsource/states/NJ.html)

    On the BIRD Foundation

    [The BIRD Foundation's] activities include matchmaking services between Israeli and American companies in the field of Research and Development. BIRD takes no equity in the joint projects and all our services are free of charge. 

    The BIRD Foundation was established by the U.S. and Israeli governments in 1977 to generate mutually beneficial cooperation between the private sectors of the U.S. and Israeli high tech industries, including start-ups and established organizations. BIRD provides both matchmaking services between U.S. and Israeli companies, as well as funding covering up to 50 percent of project development and product commercialization costs.

    BIRD’s scope extends to Communications, Life Sciences, Electronics, Electro-optics, Software, Homeland Security, Renewable and Alternative Energy and other sectors of the hi-tech industry.
    BIRD supports approximately 20 projects annually. The cumulative sales of products developed through BIRD projects have exceeded $8 billion.(http://www.birdf.com/Index.asp?CategoryID=22&ArticleID=79)

     

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  13. Tlaloc says:

    @ tlaloc:  your attitude, via your brief comment/post, is EXACTLY what is wrong with this country, with Obama, and with the increasing class warfare.  why the EFF should the guy who presumably built the company with his own money, time, risk, etc. take ANY pay cut?

    Why should we listen to him whine about how he can’t hire workers because it costs too much while he’s lining his own pockets to the tune of over half a million a year in salary and bonus alone (does not include stock)?
    The editorial was all about how the government is making it impossible for him to hire but he could cut his own salary tomorrow, hire several people, and STILL be rich.
    But of course pointing out that his argument (and yours) has an enormous flaw is what’s wrong with america.  Riiiiiiight.

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  14. Steve Verdon says:

    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?
    Only if he has no overseas competitors.  If he has European competitors, they pay a third as much for healthcare insurance as we do here (at the highest).  If he has Chinese competitors, not only are their wages a fraction of those here, there’s precious little in the way of deductions for social insurance or healthcare.

    Dave,
    Problem with that view is that it ignores that the wage can, to some extent, adjust so that the foreign firms to not have a competitive advantage.  I wouldn’t be at all surprised to find that the stagnant median wages we hear about quite a bit are due to rising health care costs.  From the employers perspective they’ve just given the employee a nice raise–4.5% more spending on health care.  From the employees perspective he got damn little.  In other words, it is all about total compensation.  Now, if there is a situation where total compensation here in the U.S. is too high relative to foreign competitors then yep, you shut down or move over seas if you can.
    The problem though with the argument that “everyone faces the same marginal cost” is that it ignores what the article is saying, “We don’t know the marginal cost and we are damn sure it is going to go up.”  In that case you have to make an educated guess and if you are conservative in your estimates in terms of how much you’ll make in revenues/profits then you’ll likely find few instances where expansion makes sense, at least until some uncertainty is resolved.
     

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  15. Zelsdorf Ragshaft III says:

    First thing we ought to do is hang all the communists.  Shakespeare had it wrong.  That way, there would be jobs for everyone.

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  16. Steve Verdon says:

    Why should we listen to him whine about how he can’t hire workers because it costs too much while he’s lining his own pockets to the tune of over half a million a year in salary and bonus alone (does not include stock)?

    Because even if you took Fleischer into the town square and tarred and feathered him and told him he’d earn zero from no till he died and he couldn’t quit, you’d still have that tax wedge imposed by all the taxes that Fleischer notes.  It would still prohibit jobs from being created which would have been created in the absence of those taxes.
     
    As soon as a tax is imposed on any commodity it drives a wedge between demand and supply resulting in a deadweight loss.  This prohibits transactions from taking place that otherwise would.  This is true for labor as it is for any other commodity.
     
    And due to our bleak fiscal outlook those taxes will likely have to go up which will increase that tax wedge and the deadweight loss that goes with it.  In other words, due to the uncertainty created by our current fiscal situation there is tremendous reluctance to expand and thereby risk exposure to a sudden cost increase…which prevents new jobs from being created.  Cutting Fleischer’s salary wont change that.  The company he works for would likely just sit on the extra cash…as most of them are currently doing.

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  17. ratufa says:

    The article overstates the government’s role in increasing hiring costs because some of the government -imposed charges such as Social Security taxes, unemployment insurance, etc, are benefits that would have to be compensated for in other costs if they didn’t exist. For example, if your employees were not in the Social Security system, they would likely demand additional compensation such as increased salaries or a private pension plan to make up for it.

    On the other hand, the single largest, non-salary cost is health insurance, and government tax policy has played a big role in making health insurance something that is provided by employers, with all the drawbacks and cost-hiding that it entails.

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  18. Tlaloc says:

    As soon as a tax is imposed on any commodity it drives a wedge between demand and supply resulting in a deadweight loss.

    Economic theory is a very poor approximation of reality.  in reality those taxes often enable economic activity that would otherwise be impossible.  Rome was an empire because it built roads.  Those roads were built using taxes and yet as opposed to your “deadweight loss” those taxes caused a huge explosion of business.  When econ theory and reality collide (as the very often do) why do econ adherents always demand the latter be the one to give way?

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  19. Tlaloc says:

    The article overstates the government’s role in increasing hiring costs because some of the government -imposed charges such as Social Security taxes, unemployment insurance, etc, are benefits that would have to be compensated for in other costs if they didn’t exist. For example, if your employees were not in the Social Security system, they would likely demand additional compensation such as increased salaries or a private pension plan to make up for it.

    It’s not so much an overstatement as an unintentional revelation.  They have no intent to make up for the loss of SS or medicare, they just want to get back to treating workers as serfs.  Hence their argument is coherentt.  Also immoral.

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  20. legion says:

    <i>It’s not so much an overstatement as an unintentional revelation. </i>
    Bingo. Steve V, you presume that IF that tax burden went down, THEN then companies would (by some economic law?) HAVE to put that additional money towards job creation and salary parity. But experience says otherwise…
     
    Companies have a finite amount of money to operate on. When times a re good, that amount increases, but when the Dow was skyrocketing, that additional money went ONLY into increasing senior executive compensation packages and dividends; the workers got squat from all that growth. Now that times are hard, rather than reduce the things they grew during the good times, companies are taking their losses out of employee salaries, and saying it’s the workers’ own fault for costing too much.
     
    In any kind of rational economic model, executives would eventually cut their workforces so much the company itself would fail, and other, smarter businesses would grow to fill the void (hiring the old company’s workers in the process), but that’s not happening either…

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  21. JKB says:

    in reality those taxes often enable economic activity that would otherwise be impossible

    If only that were still true.  Sadly the use of tax dollars to develop public infrastructure that facilitates trade for everyone has declined quite dramatically in the last three decades.  Check out  The Golden State’s War on Itself which discusses the decline of California.  True not all is taxes.  Much is environmental regulation.  Still it is a wedge that causes a deadweight loss.  The size of such losses will determine just how willing an employer is to take a risk of hiring an employee who even if competent will be a net loss for a while.  But the issue here isn’t what an employee costs today but what they might cost in the future and how those costs will impact the firm.  Right now, no one can fathom what the Dems might do next causing great uncertainty in the projected costs of new hiring.  When in doubt, wait and watch.

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  22. Tom Mathers says:

    @Tlaloc  “Lining his pockets” at $600k a year? “Still be rich?”  Really?  That’s your threshold?  Even in NJ?  Economically obtuse, and funny too.  That’s quite a combo.  Do you live within 1000 miles of NYC?
    For the sake of argument, let’s flush out your thesis more:  he takes a 50% pay cut to $300k.  he’s still “rich”, according to you and Obama, and now he’s also presumably honest, moral, and not treating his workers as serfs.  what do the new hires do for the company?  are they productive?  is the company better off?  since he’s not the owner, will the president  now be hired away at a market rate to somewhere else, leaving the company better/worse off?  will NJ be better off?  the US?  (keep in mind they get $0 in taxes from the $50k workers, and a sh!tload from the pocket-liner president of the firm).
    Let’s also keep in mind he wasn’t whining, just explaining the problems that a private enterprise faces in an uncertain political and tax environment.   Note: This is true regardless of what letter comes after the name of the current office-holder.
     
     

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  23. Pug says:

    why the EFF should the guy who presumably built the company with his own money,

    You have no idea if he built the company with his own money.  He might have, but plenty of these guys are hired hands just like the mythical Sally.

    Yeah Tom, $600K is peanuts in New Jersey.

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  24. Warren Brown says:

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    Gosh, it’s amazing that HP can even afford the $28 million golden-severance pay for their philandering CEO. One would think businesses would have gone all out for an efficient, single-payer health care system to take some of the inflated insurance costs off their backs. The reality is that many businesses would prefer to have their employees live and pay rent for company-owned housing while shopping from the company store. Or better yet, pay them nothing.

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  25. Warren Brown says:

    Gosh, it’s amazing that HP can even afford the $28 million golden-severance pay for their philandering CEO. One would think businesses would have gone all out for an efficient, single-payer health care system to take some of the inflated insurance costs off their backs. The reality is that many businesses would prefer to have their employees live and pay rent for company-owned housing while shopping from the company store. Or better yet, pay them nothing.

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  26. An Interested Party says:

    “‘Lining his pockets’ at $600k a year? ‘Still be rich?’  Really?  That’s your threshold?  Even in NJ?  Economically obtuse, and funny too.  That’s quite a combo.  Do you live within 1000 miles of NYC?”

    Sounds like the same argument used by some Democratic lawmakers that James wrote about here…

    http://www.outsidethebeltway.com/blue-state-tax-breaks/

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  27. Muffler says:

    What is being said is that Sally should bear the entire brunt. The bulk of the article goes about discussing that Sally’s taxes for insurance and other services by the government forces the employer to inflate her salary. If she didn’t have any taxes, social security, health benefits, or any other insurance he could afford her.
    Let’s see… Sally wouldn’t have any health insurance and when she got sick the employer could fire her l(because the employment laws make hiring hard and fire too – see China for nirvana) leaving her without any support to bridge employment (no unemployment insurance) and using everyone else’s tax dollars to keep her off the street or pay the emergency room bills lest she dies.
    It’s cheaper for the employer and really bad for American families and people.  His entire outlay was figured into the entire expense of doing business long ago. This isn’t new. The truth is they aren’t hiring becuase they have no idea where the economy is going OR they tried to save money by cheapening their product so no one wants it OR they cut R&D over the last 20 years to grow profits and are now obsolete in manufacturing efficiency.  Yeah – it’s always about the employees.
     
     

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  28. sam says:

    Well, Fleischer did write:

    “Companies have also been pressed into serving as providers of health insurance. In a saner world, health insurance would be something that individuals buy for themselves and their families, just as they do with auto insurance.”

    Folks might want to revisit Steve V’s interesting discussion of health care costs and business,  Health Care Costs Crippling U.S. Business?, @
    http://www.outsidethebeltway.com/health_care_costs_crippling_us_business/

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  29. john personna says:

    First of all, the question of why this guy is not hiring is simple.  It is because at the margin, and in this business climate, adding employees does not expand his net profit.  Put some fire under the economy and that would probably change, but in the meantime, people can tell a sob story about taxes.
     
    Secondly, you kind of have to ask why that job is here.  Is it because it must be here?  Is it because it cannot be outsourced?  Or is it simply a US company with tradition and momentum placing jobs here?
     
    I get Steve’s point that a 45K job might already be suffering from foreign competition, but that doesn’t really say what the story is going forward … as Asia climbs the skills and infrastructure hill.

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  30. bughunter says:

    I still want to see a cost/benefit analysis of Sally’s job. Fleischer only lists the costs. How much does she generate in benefit? I am willing to wager that the cost/benefit ratio is less than unity, otherwise she would have been downsized long ago.

    What is the cost/benefit ratio for Fleischer’s position? If it grows above unity, will he be eliminated, too?

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  31. artk says:

    The fact is that if Mr. Fleisher’s company has to buy an extra box of paper clips it will cause them to go belly up.  He’s in not position to hire anyone regardless of tax policy.
     
    The reason Mr. Fleischer’s company isn’t hiring has nothing to do with taxes or the policies of any administration.  It’s because his business has been in decline for a decade.   As the CEO, that decline is his fault.  All his complaining about taxes and benefits is just a smokescreen for his own incompetence.
     
    The world changed around them a decade ago and they failed to adapt.  In 2000, their annual sales were 66 million dollars with cash on hand of 12 million.  By 2003, sales were down to 55 million and cash was down to 6 million.  That was before the financial crisis and under the allegedly pro business policies of the previous administration. In 2009, sales were down to 44 million and cash was down to 2 million.     They manages to lose 17 million dollars that year and got a carry back refund of some 5 million dollar.  Mr. Fleischer should spend less time complaining about taxes and more time thinking about how he can correct 10 years of mismanagement.
     
    Don’t take my word for it, read the balance sheets yourself.
    http://www.bogen.com/aboutus/financials/#historical

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  32. [...] By now you’ve read the whiny op-ed in the WSJ by Ari Fleischer’s brother, explaining that the evil government is to blame for him not hiring more employees. Putting aside the fact that Bogen’s main business is… as a contractor for various government entities (via), this comment at OTB was pretty informative: [...]

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  33. steve says:

    The Germans manage to cope with high taxes and unions, yet they keep going. Why can’t Mr. Fleischer? How has he managed to cope with rising health costs in the past? Increases in health care far outweigh anything he has faced in taxes.
     
    Steve

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  34. anjin-san says:

    The CEO of Wellpoint makes 57 million a year, but companies can’t afford health insurance for employees.

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  35. sam says:

    Hey, just found out that George is Ari’s brother. Maybe that explains the bullshit in that editorial — it’s genetic.

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  36. sam says:

    Where the hell did I get George? Bush? Anyway, Michael, le auteur, is Ari’s brother.

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  37. sookie says:

    >>>  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. <<<
    In some places they haven’t been only tangentially related for some time.
    In all instances, some insurance benefits were market driven and or contract driven, which in the case of unions, wasn’t always clear of government coercion.  And some insurance cost were mandated
    However, I suspect that if that was the only complaint, that the market forced him to provide a certain level of health and life insurance benefits to acquire and maintain a certain type of employee, he’d not have written the op-ed.
    And in any case they are no longer 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.  <<<
    Ding, ding, ding!!!  We have a winner.
     
    >> But, presumably, his competitors face exactly the same pressures. <<
    No increasingly his competitors are from emerging economies and they don’t have the level of required taxes and benefits.   And even when this isn’t the case, it doesn’t change his situation.
    I’m always amazed when people do not have any clue what it cost business just to comply with government mandates.
     

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  38. Steve Verdon says:

    Tlaloc,

    Economic theory is a very poor approximation of reality.  in reality those taxes often enable economic activity that would otherwise be impossible.  Rome was an empire because it built roads.  Those roads were built using taxes and yet as opposed to your “deadweight loss” those taxes caused a huge explosion of business.  When econ theory and reality collide (as the very often do) why do econ adherents always demand the latter be the one to give way?

    Stupid argument Tlaloc.  Sure, public goods may very well be under provided and provide a necessary condition for taxes (not a sufficient condition) there is still a trade off.  The concept of a deadweight loss is extremely well accepted and is based on little more than supply and demand analysis (it is like arguing that physics models are a poor approximation of reality).
     
    Tlaloc again,
     
    Funny how you agree with the implications of economics when it suits you, and don’t when they don’t.
     
    By the way, they couldn’t hire 6 more “Sally’s” for $300,000.  Read the article dim wit, it costs the company $74,000 to employ her, so they could at most hire 4 more Sally’s. Without the taxes they could have hired 6, but those two people will clearly benefit from your trickle down theory of government spending.
     
    Your claims of a “huge” explosion in business are extremely over-estimated.  It is akin to the multiplier argument to government spending and we just aren’t seeing that kind of effect.  Further, there are other ways to raise tax revenues to pay for public goods than payroll and income taxes.
     
    There is a valid argument here that the tax wedge based on current tax policies have and are inhibiting job creation.  Changing our tax structure to minimize that impact might very well result in more jobs.  For example, shifting to a consumption tax as proposed by Hall and Rabushka might help.  Moving from a payroll tax for Medicare and Social Security to a gasoline tax might also help as well with the added benefits in terms of the environment.
     
    Ratufa

     
    The article overstates the government’s role in increasing hiring costs because some of the government -imposed charges such as Social Security taxes, unemployment insurance, etc, are benefits that would have to be compensated for in other costs if they didn’t exist.

    Yes and no. Yes wages would go up with out these taxes, but so would employment.  That is how removing a distortionary tax works.
     
    Legion,
     
    See the above, Ratufa and Tlaloc are both wrong in their conclusion that jobs would not be created by removing these taxes.  Wages would go up because of competition.  For example suppose the taxes went away and Sally’s pay stayed the same.  If Sally is a productive employee she is now being paid less than she is worth to the company (remember to the company she is worth $74,000).  So a competitor would have every incentive to hire her and pay her a bit more.  Over time Sally’s wage would rise. The only way for it not to rise is if there is only a single demander (a monopsony) or a few (oligopoly) and they engage in some sort of price fixing.  If your view is the latter, please provide the evidence.
     

    How much does she generate in benefit?

    At least $74,000 + $1, otherwise why even keep her employed?
     
    steve

    The Germans manage to cope with high taxes and unions, yet they keep going. Why can’t Mr. Fleischer?

    It isn’t a matter of coping.  If taxes were raised and there was certainty that taxes would not rise indefinitely, there would still be people employed.  What would happen though is that there would likely be less people employed all other things constant.  Now, if the new tax revenue is spent in ways that also enhance future growth (a debatable proposition) the resulting new growth MIGHT off set the lost jobs…or it MIGHT NOT.  Right now firms are looking at rising health care costs, quite possibly rising payroll taxes, and possibly other taxes as well.  So they are playing the waiting game.  Waiting till they get a better idea of what the future entails.

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  39. inthewoods says:

    “Only governments can raise prices repeatedly and pretend there will be no consequences.”
    That’s funny, because my healthcare costs have gone up by between 15-25% per year over the last 3 years – and my healthcare company seems to pretends (as does my company) like there are no consequences.

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  40. ratufa says:

    “See the above, Ratufa and Tlaloc are both wrong in their conclusion that jobs would not be created by removing these taxes.”

    I never claimed that jobs would not be created if Social Security (or some of the other) taxes were removed. My claim was simply that if employees aren’t enrolled in Social Security, some of the money saved by the employer not paying FICA taxes would most likely have to go towards either increased salaries or some type of pension plan, and would not be available for hiring new people.

    My more general point is that when the author of the article says that, “it costs $74,000 to put $44,000 in Sally’s pocket and to give her $12,000 in benefits”, he’s being a bit misleading, since some of the tax overhead is paying for additional benefits. Arguably, Sally may be better off if she were given the amount paid in Social Security taxes as salary and invested it for her own retirement, but that’s another issue.

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  41. Juneau: says:

    Class warfare?  This administration doesn’t encourage class warfare, uh uh.
     
    The comments here can be broken straight down the middle; on the left you have the liberals claiming the problem is that someone is getting too big a piece of the pie, either shareholders or executives.  On the right, you have folks saying that the problem is that the pie needs to get bigger and the uncertainty caused by government policies is inhibiting that. from taking place.
     
    As usual, the left wants to take from some and give to others, using the justifications of “excessive” pay as the excuse.  While the right wants the government to at least make up its greedy mind how much confiscation is going to take place, so that they can get about the business of figuring out how much they can safely invest in growth without potentially hamstringing themselves.
     
    The left:  You!  You have more than you should!  Give to me and I’ll make sure it gets to the people who deserve it more than you.
     
    The right: Government!  You are a horrible steward of the taxpayer’s resources!  Leave me with more and I’ll make it gets used to create more income.
     
     

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  42. Juneau: says:

    @Steve
    The Germans manage to cope with high taxes and unions, yet they keep going. Why can’t Mr. Fleischer?


    “Cope” is exactly the right word you use here.  You present the issue as though Germany offers an example where unionization and high taxes exist side by side with a thriving economy.  Hardly the case, as you can see with a little research.
    http://www.creditwritedowns.com/2010/03/the-german-economy-is-essentially-intact.html
    In fact, while German industry is surely now in “recovery mode”, the process is something of a stop-start one (see chart below), since even though according to the latest data from the technology ministry output was up by an estimated 0.6% in January over December (and even up by 2.2% over the very low level hit in January last year) it is still down by 18.5% over the March 2008 peak.

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  43. inthewoods says:

    “The comments here can be broken straight down the middle; on the left you have the liberals claiming the problem is that someone is getting too big a piece of the pie, either shareholders or executives.  On the right, you have folks saying that the problem is that the pie needs to get bigger and the uncertainty caused by government policies is inhibiting that. from taking place.”
    Actually, while I think some people are making that argument, most of what I’ve read on the thread are people pointing out that whining about taxes, which really isn’t the problem with this guy’s company nor truly affecting whether he he hires or not, is rather ridiculous.  And that he has been leading a company which pays him a large salary, which he didn’t start, which gets money from government contracts, and which has been mismanaged, by him, such that revenues and other metrics have been going down since he took over.  So the major complaint isn’t about wealth redistribution, but rather, about why we should listen to what appears to be a fairly incompetent business owner blame his problems on the government.

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  44. anjin-san says:

    The right: Government!  You are a horrible steward of the taxpayer’s resources!  Leave me with more and I’ll make it gets used to create more income. But don’t dare think of actually cutting any of the government services that I want just as badly as any Democrat.

    Fixed that for you.

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  45. anjin-san says:

    The left:  You!  You have more than you should!
    Juneau you are truly a joke. Most of the commentators in here who are registered Democrats probably far more successful & make a great deal more money than you do. I am reasonably certain that I do, and Michael could probably buy you out of petty cash. I love making money, I love working for a highly profitable corporation, and I love sinking my teeth into new business problems and opportunities.  You would be hard pressed to get an entry level position where I work.  How many jobs do you create skippy?

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  46. john personna says:

    I thought this paragraph from Steve V was most interesting:
     

    There is a valid argument here that the tax wedge based on current tax policies have and are inhibiting job creation.  Changing our tax structure to minimize that impact might very well result in more jobs.  For example, shifting to a consumption tax as proposed by Hall and Rabushka might help.  Moving from a payroll tax for Medicare and Social Security to a gasoline tax might also help as well with the added benefits in terms of the environment.

    By “valid argument” I suppose he means one with valid for and structure, and not one that is necessarily convincing (let alone a proof).  Sure.  And a “valid argument” could be made that taxes are not a limiting factor in jobs creation at this time.

    Both arguments rely on a “jobs creation equation” stated, or unstated.  Weigh some factors more highly (which you can do by making them up or data-mining historic data) and you get the answer you want.

    To me though, the fact that we are in a consumer spending contraction is the elephant in the room.

    http://www.consumerindexes.com
     
    (BTW, I prove my moderate-ness by not doing either of the cardboard things Juneau lays out for “right” and “left.”

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  47. [...] James Joyner: 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. [...]

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  48. MJC says:

    Tlaloc, your comment that

    “Economic theory is a very poor approximation of reality. in reality those taxes often
    enable economic activity that would otherwise be impossible.”

    is puzzling to me. In the span of those two sentences, you contradict the very point you were attempting to make. Saying that economic theory is a poor approximation of reality and supporting that assertion with a Keynesian economic theory that taxation and subsequent government spending is somehow simulative is nonsensical. Hypocrisy aside, such Keynesian policies provide, at best, only a transitory boost to economic activity — and often/generally at the expense of longer-term prosperity. Such is the case today. At present, over 95% of the receipts/taxes that he government collects from us are spent in the areas of social benefits and transfer payments (collectively, “wealth redistribution”). The net effect of this is that, by and large, all other government spending in the areas of infrastructure, research, defense, even interest on the debt is effectively financed with more debt. I hardly think this is the type of spending that generates long-term and sustainable national wealth or fosters conditions favorable for capitalism and private markets to thrive and create jobs. As a result, today’s government spending (and reason for collecting taxes) has little to do with stimulating the economy and everything to do with keeping the increasing number of citizens that have fallen (and been left) behind afloat by providing them ever increasing levels of government support. I’ll refrain from a discussion of why demographic trends in the U.S. (and rest of the world) make this a ticking time bomb, but suffice it to say that the benefit cuts (reduced, delayed, eliminated social security, Medicare, etc..) and tax increases necessary to rebalance our fiscal house represent a substantial drain on future resources and growth. These trends have direct consequences for any business leader trying to forecast demand and evaluate the potential return on capital and labor investments. Higher taxes generally result in lower consumer demand, slower economic growth, and raise the marginal gain in productivity necesary to justify hiring.

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