Monday, August 09, 2010

Why businesses aren't hiring

The WSJ has a column by a New Jersey businessman outlining how much it costs him to employ one person. He writes about one employee, Sally who nominally earns $59,000 a year before all her deductions are taken out. But it costs her employer a lot more than $59,000 to employ her.
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.
And that number is going up. Again, due to the government - this time it's ObamaCare.
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. Now, adding to the insanity, there is ObamaCare.

Every year, we negotiate a renewal to our health coverage. This year, our provider demanded a 28% increase in premiums—for a lesser plan. This is in part a tax increase that the federal government has co-opted insurance providers to collect. We had never faced an increase anywhere near this large; in each of the last two years, the increase was under 10%.
So what can a businessman do? The Democrats might believe that businessmen are just evil Scrooges who are hoarding their money and now will be forced to shell it out to take care of their employees. But that isn't how business works. Especially these days with all the government requirements in spending that are already on the books.

Businesses have to find the money to pay for those additional charges. And that money is going to come from money that might have gone to hire a new employee.
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.

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.
Businessmen understand this. Democratic politicians don't. And the Obama administration doesn't have anyone with real world business experience to explain to them what goes into meeting a payroll. Perhaps they can read Mr. Fleischer's column in the WSJ and get an idea of what the heck a businessman actually has to think about when he decides whether to expand or not.

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