A Perspective on Why US Businesses are Slow to Hire

[adios]

A dialog from a msg board today:

Poster 1

As far as jobs go I can speak to where they went in manufacturing. Personally I am trying to eliminate every job I possibly can thru automating processes and robotic equip.

I am driven by normal needs to improve but driven with a greater need due to gov. meddling in the emloyment process. When FMLA (Family and Medical Leave Act) allows free in and out privileges and State Disability and Workers Comp. pay bonus tax free wages creating an incentive to not work and mis-report, then workers will use it and abuse it.

Populist legislatures are the real cause and we in manufacturing are cutting with a vengeance. Unskilled high pay union jobs are a thing of the past. I will pay my elect. 80k a year no problem but not a high school dropout.
My industry is not amenable to overseas production but the jobs can still be eliminateed.

Poster 2 in reply to Poster 1's post:

I have a friend who is CEO of a small manufacturing company. Recently they expanded a warehouse and the permitting costs were $200,000 which just gave them the governmental ok to start spending more money. She also has a major problem with worker comp including fraud she is fighting. The issue with workers comp is that her main customers such as petco monitor what they can buy knockoffs for from China so she cannot raise prices to cover costs. She is outsourcing some products in china to stay in business but no hiring. She loves her employees, hire handicapped folks but can't expand payroll without eroding the business.

Poster 1 in reply to poster 2:

I am a fairly large self insured employer but the costs for a small business coverage works out to more than mimimum wage per employee. You can get an entire college trained worker overseas for $6.00 an hr.

Perhaps this is the real reason why business's are slow to hire.

A third poster, Poster 3, wrote this in response to Poster 1's original post:

In absolute agreement with you on this one. Relatively unskilled, high pay jobs are out the window. Also, in my industry, the eyes are finally beginning to gaze at the "skilled" white collar jobs as well. Sure, you can outsource them, but a whole lot can be eliminated by "decision-making" automation. In my industry, a 75% reduction in personnel-related costs would level the playing field with "free" labor & brains in China.

Yes, I'm in involved in making this change happen. Tough topic, but those are the kind of gains in productivity that are required to knock out high cost labor & brains as a competitive disadvantage here in the States.

Insightful, doubt that Kerry or Bush will help this situation.

[BadBoyBenny]

Good stuff adios. Do you mind If I ask where this board is?

I think the California situation only serves to further highlight the economic effects of excessive workman's comp, and the Detroit economy further highlights the effect that unions add.

I work in Information Technology for a large corporation, and a lot of what I do could be considered developing automated decision making products. When someone proposes a new IT project and claims it will save our company a lot of money the first thing executives ask is where. If they say it will reduce the need for manpower, or beauracracy, the next question asked is whose job this will replace.

Businesses can only make more money by generating revenue or reducing costs. It just so happens that worker's entitlements and a demand for a presupposed American standard of living create the biggest costs that most companies in this country have.

[adios]

[deathtoau]

Between those items and healthcare costs, it is no wonder that the job market is not improving.


Evans On The Economy -- Our Incurable Disease

Neither government nor business can pay for runaway health-care costs.

By Michael K. Evans

Question: If medical care costs rise 15% per year at the same time that wages rise 3% per year, and medical care currently accounts for 16% of total consumption, how many years would it take before medical-care costs account for more than 50% of total consumption?


Answer: 10 years.

Now, you and I know that the average consumer is not going to be handing over 50% of his or her total income for medical care 10 years from now. But there's nothing wrong with the compound arithmetic. So the answer must be elsewhere.

Medical-care costs, which have been growing at 15% per year for the past five years, are rising because people are using more medical care. That's partly because people are living longer, partly because new "miracle" drugs and treatments are available, and partly because the medical profession has convinced a gullible public that it ought to be taking all sorts of expensive medicines that it really doesn't need on a regular basis.

Who pays? One possibility is to have the government fund the big increases in medical-care costs. That would be quite a step up for the Feds. During the past five years -- while most of the big cost increases have occurred in private health-care plans -- federal Medicare expenditures have risen a fairly modest 5% per year, and Medicaid outlays have risen 11% per year.

The Feds could step in, but I don't think so. The reasons are in the numbers. For fiscal year 2003, the government accounting year that ended Sept. 30, estimated expenditures for Medicare and Medicaid were $473 billion. If those outlays grew at 15% per year instead of 8%, the difference by 2013 would be some $894 billion each year. Democratic presidential hopeful Howard Dean, a medical doctor, thinks we can pay for all this and more simply by rescinding Bush's upper-income tax cuts. But not many agree.

How about the private sector? Private employers simply are not going to pick up the burden. It would put most of them out of business. Again, consider the numbers. If government medical care expenses are $473 billion this year, and total medical care expenditures are about $1,450 billion this year, the private sector is paying, directly or indirectly, about $1,000 billion. If that outlay grows at 15% per year, by 2013 the private sector would be shelling out $4,000 billion, an increase of $3,000 billion. Assuming that corporate profits keep pace with GDP, pretax profits will be about $1,400 billion in 2013. The numbers don't work.

People are going to have to start using less medical care. There are two ways to accomplish this. The government can decide, or the private sector can decide. Within the private sector, the decisions can be made by HMOs and PPOs, or by private individuals. The latter would happen when legislators decide to give each individual a set amount to spend on medical care, and let them decide how best to spend their dollars; whatever is left can be carried forward. Included in this option is a two-tier pricing system, with the cost of the physician and the hospital at one level if you waive your right to sue, and a higher level if you retain that right.

I don't know which, if any, of these changes is likely to occur in the next several years. However, I do know one thing: Medical-care costs cannot continue to rise at 15% per year. And when something cannot continue to rise indefinitely, it eventually reverses course.

Michael K. Evans is chief economist for American Economics Group, Washington, D.C., and president of the Evans Group, an economics consulting firm in Boca Raton, Fla.

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/images/graemlins/grin.gif benny: everyone gripes about the high cost of health care....until they really are in a medical crisis; then they want the best; not the most cost-effective care...that's the truth..

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