Posted 5 years ago on July 3, 2012, 7:11 p.m. EST by ponchovilla
This content is user submitted and not an official statement
Dear Person Seeking a Job: Why I Can't Hire You (July 3, 2012)
Potential employers have to respond to the incentives and disincentives that exist in today's world, and those do not favor conventional permanent employees.
I know you're hard-working, motivated, tech-savvy and willing to learn. The reason I can't hire you has nothing to do with your work ethic or skills; it's the high-cost Status Quo, and the many perverse consequences of maintaining a failing Status Quo.
The sad truth is that it's costly and risky to hire anyone to do anything, and "bankable projects" that might generate profit/require more labor are few and far between. The overhead costs for employees have skyrocketed. So even though the wages employees see on their paychecks have stagnated, the total compensation costs the employer pays have risen substantially.
Thirty years ago the overhead costs were considerably less, adjusted for inflation, and there weren't billboards advertising a free trip to Cabo if you sued your employer. (I just saw an advert placed by a legal firm while riding a BART train that solicited employees to sue their employers, with the incentive being "free money" for a vacation to Cabo.)
The other primary reason is that there are few (to borrow a phrase used by John Michael Greer) "bankable projects," that is, projects where hiring another worker would pay for the costs of the additional overhead, labor and capital and generate a reason for making the investment, i.e. a meaningful profit.
There is very little real "new business" in a recessionary, deflationary economy: any new business is poaching from an established business. The new restaurant isn't drawing people from their home kitchens, it's drawing customers from established restaurants.
The only competitive advantage in a deflationary economy is to be faster, better and cheaper or have a marketing and/or technology edge. But marketing and technological advantages offer increasingly thin edges. The aspirational demand (driven by the desire to be hip or cool) for a new good or service has a short half-life. As for technology: miss a product cycle and you're history.
Put these together--higher costs and risks for hiring people, and diminishing opportunities for expansions that lead to profit--and you have a scarcity of projects where hiring people makes financial sense.
Faster, better and cheaper usually means reducing the labor input, not increasing it. In a deflationary economy, it's extremely difficult to grow revenues (sales), and as costs continue climbing inexorably, the only way to survive is to cut expenses so there is still some net for the owner/proprietor to live on.
Consider the tax burden on a sole proprietor who might want to hire someone. The 15.3% Social Security/Medicare tax starts with dollar one. After the usual standard deductions, the Federal income tax is 15%, and 25% on all earned income above $34,800. My state tax is around 5%. Since every other advanced democracy pays basic healthcare coverage out of tax revenues, the $12,000/year we pay for barebones healthcare insurance is the equivalent of a tax. That's 15% of our income. Property tax is also $12,000 annually, so that's another 15%.
Above $35,000 in income, my tax burden is 15% + 25% + 5% + 15% + 15% = 75%. You can imagine how much money I would need to clear to be able to afford hiring someone. The number of businesses that generate huge sums of profit are few and far between, and the number of businesses that scale up from a one-person shop to mega-millions in revenues is also extremely limited.
The potential employer is faced with this reality: the money to hire a new employee will come out of my pay, at least at first. Hiring an additional worker only makes sense if the new employee will immediately generate enough additional revenue to fund his/her own wage and overhead costs, the added expense of supervision and a profit substantial enough to offset the risks.
I should stipulate that my knowledge of hiring people and being an employer is not academic. My partner and I launched a business in late 1981, in the depths of what was at that time the deepest recession since the end of World War II. We had a very diverse ethnic workforce and did millions of dollars of work. Rather than make a fortune I lost $50,000 and had to mortgage the house we'd built by hand to make good all debts. I exited in 1987 with my personal integrity intact: nobody lost money working for us.
The losses were basically the result of me pushing the outer boundaries of my experience and thus my competence in an unforgiving, very competitive environment. The learning curve in business is steep and pricey.
I have also been involved in saving/managing a small non-profit organization that had expanded payroll far beyond what the organization's revenues could support.
What newly minted employers understand that employees rarely understand is that the overhead costs of hiring even one person do not scale at first. To hire one person, even part-time, the employer needs to set up a complex infrastructure to manage the payroll taxes and accounting, and comply with a variety of statutes. If the employer does not follow the many laws regarding labor, witholding taxes, workers compensation, liability coverage, disability insurance, unemployment insurance and so on, then the employer is at risk of penalties and/or lawsuits.
If a business does $1 million in gross receipts a year and already has five employees and a manager, it's not that burdensome to hire a seventh employee--the framework is all set up. But the cost of setting all that up for employee #1 is not trivial, especially when you realize the complex machinery all has to be overseen and managed.
In the Silicon valley model, a couple of guys/gals work feverishly in the living room/garage until they have a product/service to sell to venture capital. If the pitch succeeds, the VCs give them a couple million dollars and they hire a manager to sort out all the paperwork, management, etc.
Most small businesses/proprietors don't get handed a couple million dollars. They have to grow organically, one step at a time. Each expansionist step is fraught with risks, especially when opportunities to grow revenue are few and far between and are generally crowded with competitors.