Tag Archives: jobs

A Thought on Minimum Wage

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The current minimum wage is $7.25/hr, and under the guise of that being not enough to live on (it works out to about $15,000/yr before taxes), there’s move afoot to raise the minimum—to anywhere between $9/hr and $15/hr.

I’ll ignore in this post the fact that the jobs that get minimum wage are low-skill and/or entry-level jobs whose product simply isn’t worth very much money.  I’ll ignore, also, the fact that very few minimum wage earners have this job as their sole source of income—it’s a second job, intended to supplement the income from the primary job.

I want, instead, to propose a wholly radical idea: how about reducing regulations, especially for small businesses (the ones hardest hit by minimum wage laws) and lowering tax rates (of which min-wage earners aren’t paying much, but which taxes contribute to the cost of the goods min-wage earners are trying to buy)?  Those tax and regulatory costs drive up our (which includes min-wage earners) cost of living, as the cost of the things we buy is driven by those regulatory and tax costs of doing business.

Here’s a brief look at (aggregated) regulation costs for small businesses.  Daniel Sutter, a Professor of Economics at Troy University, had this information in a recent piece in the Troy Messenger:

…compliance [with Federal regulations] often requires spending on new equipment, signs, or other changes to workplaces.  Both the Competitive Enterprise Institute and Small Business Administration estimate the cost of regulations at around $1.8 trillion.  …this $1.8 trillion (largely hidden) cost of [Federal] regulatory compliance exceeds the revenue from Federal individual and corporate income taxes combined.  It represents almost 12% of GDP, or nearly $15,000 per family, annually.

There’re those $15,000, again.  Also, that aggregate cost equals 10% of the current national debt.

Sutter also had this:

Automobile dealers, for example, must comply with over forty Federal regulations affecting every aspect of their business, from the showroom to the service bays.

They aren’t even allowed to run their own businesses without the Feds looking over their shoulder, telling them how to do so.

And it goes beyond compliance costs.

Regulation reduces the freedom of individuals and businesses to innovate or create new products.  Regulation reduces productivity growth, ultimately reducing standards of living, and particularly burdens small businesses, which are the source of many new jobs.  The greatest cost is likely the new products, services and businesses that are never created because of regulation.

Now, about those taxes….

The small business owner, rather than the business itself, typically pays the taxes on the business’ income, as that, and its costs, typically are passed through to him.

A small business might have an annual income of, oh, say, $500,000—and if it’s really successful, that’ll generate a profit of $50,000.  Any salary he might take out of the business is on top of that, but let’s ignore salary and only concern ourselves with the income tax on that profit.  On those $50k, he’ll pay roughly $8,400 in ordinary income tax—nearly 17% of that profit ultimately lost to the government—at 2013 single rates.  At married, filing jointly, the bite will be roughly $6,600—13% of his profit lost.

Rather than raising the minimum wage, and pricing the worker out of the labor market, it’d be better to enable the existing wage to go farther by getting rid of all those Federal regulations, and their costs, and lowering tax rates.

Executive Pay and Jobs

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TJ Rogers, Founder and CEO of Cypress Semiconductor, wrote in part about executive pay and income taxes in his experience in a Wall Street Journal op-ed a while ago.

A couple of years ago, I decided to invest in my hometown of Oshkosh, Wis., by building a $1.2 million lakefront restaurant.  That restaurant now permanently employs 65 people at an investment of $18,000 per job, a figure consistent with US small businesses.  If progressive taxation in the name of “fairness” had taken my “extra” $1.2 million and spent it on a government stimulus program, would 65 jobs have been created?

According to recent Congressional Budget Office statistics on the Obama administration’s 2009 stimulus program, each job created has cost between $500,000 and $4 million.  Thus, my $1.2 million, taxed and respent on a government project of uncertain duration, would have created about one job, possibly two, and not the 65 sustainable jobs that my private investment did.

On the other end of the capital-intensity scale, Cypress Semiconductor required huge investments to create jobs in its chip-manufacturing plants.  Between 1983 and 2003, those investments totaled $797 million and led to the creation of 4,033 jobs at an investment of $198,000 per job created.  Thus, my own experience on the cost of job creation ranges from $18,000 to $198,000 per job, compared with $500,000 to $4 million per job created by the Obama stimulus program.

That got me thinking about CEO compensation and the number of employees working for the CEO’s company more generally—how much was the CEO paid per employee on the payroll for stable companies that were not (yet, or anymore) actively investing in plant expansion?

Here, for some not very randomly selected large corporations, are CEO compensation, total employees in the company, and the CEO’s compensation per employee.  The data, for the year 2011 (except as noted), are from CNN Money.

Company

CEO Total Compensation

Total Employees

CEO $ Per Employee
GE

$21.4 million

287,000

$74.6
Wal Mart Stores

$17.7 million

2,200,000

$8.0
Exxon Mobil Corp

$29 million

(2010)

99,100

$292.6
AT&T Inc

$27.3 million

256,420

$106.5
UnitedHealth Group Inc

$10.8 million

99,000

$109.1

 

Here are the same data for small businesses (contra Rogers’ example, fewer than 25 employees), averaged across selected industries.  The CEO $ per employee is figured, naively, on 15 employees, since most small businesses won’t have 24 employees, and 15 made the arithmetic easier than 12 (the mid-point of the employee range).

Industry

CEO Total Compensation

CEO $ Per Employee
Business Services

$138,000

$9,200
Construction

$148,500

$9,900
Healthcare

$130,800

$8,720
Retail & Wholesale

$175,300

$11,690
Internet

$131,900

$8,795

 

These guys, despite being an order of magnitude, or two, more expensive than a large corporation CEO on a per job basis, still are enormously more efficient job creators than the Federal government.

The real takeaway, though, from these two tables has to do with the compensation “disparity” between CEOs and line workers, especially concerning those highly paid large corporation MFWICs.  Given the hiring rates they’re generating, they seem to be worth their pay.  (And none of this disputes the thesis that it’s small businesses that are the engines of economic growth and employment hiring.  It’s a whole lot easier to ramp up a small business than it is a large one.)

Some Labor Day Questions

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The Wall Street Journal asked some questions on Labor Day 2012, and supplied some answers.  Here are some of those questions and answers, which remain as valid this Labor Day.

  • Q: How are America’s workers doing? Not good. Over the past decade, over the ups and downs of the economy, taking inflation into account, the compensation of the typical worker — wages and benefits—basically haven’t risen at all. … The Labor Department recently said that 6.1 million workers in 2009-2011 have lost jobs that they’d had for at least three years. Of those, 45% hadn’t found work as of January 2012. … Federal Reserve Chairman Ben Bernanke said Friday that unemployment is still two percentage points higher than normal….
  • Q: Things ARE getting better, though. The U.S. economy is creating jobs, right?  Back in December 2007 when the recession began, there were about two jobless workers for every job opening.  When the economy touched bottom in mid-2009, there were more than six unemployed for every job.  At last count, the BLS says there were 3.4 jobless for every opening.
  • Q: How much of this elevated unemployment is because the unemployed just don’t have the skills that employers are looking for right now?  Some.  …the bulk of the evidence is a lot of the unemployment really is the old-fashioned kind: the kind that would go away if the economy was growing at a stronger pace. Mr. Bernanke said as much at the [2012] Jackson Hole conference….

The Democratic President has taken a bad situation and done little to improve it.  He has, though, actively attacked businesses—the hirers—demonizing them, (over)regulating them, demanding to raise taxes on them.

Happy Labor Day.

Economic Disinformation

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President Barack Obama actually said this out loud to The New York Times:

T]hat [Keystone XL pipeline] oil is going to be piped down to the Gulf to be sold on the world oil markets, so it does not bring down gas prices here in the United States.

Because increased supplies don’t actually decrease prices.  Sure.

Actually, that distorting claim is of a piece with Obama’s steady drumbeat of distortions concerning the effects of his economic policy.

Here are the latest employment statistics, which Obama insists demonstrate that effectiveness and why he should be able to spend and tax even more.

Total nonfarm payroll employment increased by 162,000 in July, and the unemployment rate edged down to 7.4%….

That’s against ADP’s mid-week claim of 200,000 new jobs.  And what’s behind that apparent improvement to “only” 7.4% unemployment?

…long-term unemployed (those jobless for 27 weeks or more) was little changed at 4.2 million.  These individuals accounted for 37.0% of the unemployed.
…
The number of persons employed part time…was essentially unchanged at 8.2 million in July.

Additionally, the labor force participation rate (the per cent of our adult population actually trying to find work) dropped last month to 63.4%, approaching a 30-year low, as some 240,000 Americans gave up trying to find work in this stagnated-at-lousy economy.  That drop underlies the seeming drop in the headline unemployment rate.

That’s not all.  We see from The Wall Street Journal that actual economic expansion—the GDP growth rate—while still positive, is falling and has done so for some time.

Because Obama’s Keynesian politics have been so effective, and his claims about the wisdom of them have been so accurate.  Never mind that downward trend over the last 7 quarters.

The Dallas branch of the Fed has some interesting charts, also.  This one compares current unemployment duration with the length of unemployment in past recessions.  Careful readers will recognize the recession of ’74-’75 at the end of Jimmy Carter’s term, and the ’81-’82 recession at the start of Ronald Reagan’s terms.

This next graph shows…graphically…the effectiveness of Obama’s economic policy.  No matter who’s estimating, we just don’t catch up.

Last one.  This graph shows how the Obama Recovery compares with our history of economic recoveries.

But Obama says everything is Jake, and those Evil Republicans should get out of his way, so he can do even more of this.

Car Pooling

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…but only the union way.

In the past month, San Francisco International Airport officials have been citing and arresting drivers from mobile-app enabled rideshare companies that pick up and drop off passengers, an airport spokesman said.  Airport spokesman Doug Yakel said there have been seven citizen arrests issued to “various offenders” since July 10.  The airport had issued cease and desist letters to several rideshare companies, including Lyft, Sidecarv and Uber, in April.

Notice that these are not “professional” drivers—not union cabbies—that are being harassed.  CBS San Francisco points out that the harasses are “drivers participating in a mobile app arrangement typified by Sidecar.”

Naturally, a union—a taxi union in this case—objects to rideshare at “their” airport.  The competition might save the customers money (good for them, bad for the protected class), and it might save gas (good for the environment, bad for—well, not much of anyone).

But there’s a solution afoot:

The state Public Utilities Commission, which regulates and licenses passenger carriers, has been looking into how to regulate these new types of companies.

Of course.  Because we Americans are just too stupid to be trusted to do anything on our own, without a Know Better Government’s regulation to tell us what to do, how to do it, and when we should do it.