There has been a bit of chatter about this article in the Wall Street Journal about the costs of employment. Here, for example, is Mark Perry. The cost of providing a job that pays $44,000 (gross) and provides $12,000 in benefits is much, much higher than it at first appears. Enthusiasm for ever-larger piles of mandates on employers is only going to make this worse. Here are a couple of quick thoughts based on my recent experience:
1. What is the “regulation” elasticity of business formation? I’m guessing it’s substantial: small increases in the probability of prosecution, fines, etc. and other imposed costs probably lead to large reductions in the rate at which new enterprises form. I would also guess that this leads to larger, more concentrated firms. Wal-Mart, for example, has a small army of people who can deal effectively with the changing regulatory environment. Mom & Pop’s Sodas and Sundries probably doesn’t.
2. A couple of quick glances out the window indicate that the costs are non-trivial. More than once, I’ve noticed that when I’ve wanted to buy a good or service, it has been out of stock, the person on the other end of the phone line hasn’t been able to help me, or the hours of some of the brick-and-mortar establishments at which I’ve tried to shop have been less than convenient. These aren’t world-ending or life-changing annoyances and inconveniences, mind you, but it’s important to remember that they represent foregone opportunities for people to enjoy gains from trade. The costs I’m bearing are pretty small, but when you add them up over (say) the entire US or world population, you’re talking about an enormous number of attempts by people to better their own circumstances that are thwarted by regulations, taxes, and what have you.
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And that’s just the direct dollars going into taxes. How much does Mr. Perry have to pay accountants to do calculate and pay those taxes? One of the quick and dirty things I did during my auditor years was figure out the average cost of doing business that was part of the business vs something forced on the business by government (taxes, regulatory costs, tax preparation, flow-through from suppliers, etc). It comes out to be about 50% of the entire cost of a product made in the USA. Buying Made in America means half of that either ends up in the hands of government or to pay someone to make sure that ends up in the hands of government.
Right on. And the carping about people who don’t pay income tax getting away scott free, as if there were some escape from being taxed. The cost of some of the products people buy is more than 90% taxes and regulation burdens that have been added to the cost of manufacture.
Another thing about the true cost of employees, is that most employees have no idea how much they truly cost a company to have on the payroll.
As you said, this affects the whole world. Here in australia, The would-be Prime Minister, Julia Gillard, is the same minister who enforced a law which stopped two high-school students from working for only two hours a night- the union rules dictated that they work for three hours, or at least be paid for three hours work! the small businesses who would have hired then for two hours couldn’t afford to hire them for three, nor pay them for doing more than two hours a weeknight. Regretably, she might get in, and be our leader!
the unions have spent a lot of money on her. it will prove to be a good investment for them.
It comes out to be about 50% of the entire cost of a product made in the USA.
Wow. This is a real eye opener! People are still having trouble finding jobs and small businesses are still struggling in this economy. There’s a great site out there helping people find jobs. It’s called Turn US Around. Not only are they helping people they also help small businesses find grants and students find scholarships. I’d definitely suggest checking it out. http://www.TurnUSAround.com
More than a few of the most obnoxious pieces of nuisance legislation come about at the urging of companies in the business being regulated. They impose expensive regulatory hurdles on themselves and the competition because they’re confident they can meet those hurdles more cheaply than their competitors. Once imposed, the new regs drive the competition out of business– or at least forces them to raise their prices to the degree that they can no longer compete.
A good example is the regs for organic produce. Record keeping on such farms is immense, and costly to maintain. A huge farming operation finds it simple to provide such documentation as is required to advertise one’s produce as certified organic. But Farmer Bill has trouble providing the same degree of documentation for a farm one-thousandth the size. So he goes under.
Here’s an example of this kind of thing: the Food Safety Bill:
http://www.govtrack.us/congress/bill.xpd?bill=s111-510&tab=summary
Large truckers will have no problem certifying premises, truck interiors and storage facilities. The little guys will have to provide the same degree to the Feds, and consequently charge more for their food products.
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