A couple guys and I were arguing today about the state of the labor markets going forward in the US. The idea of a new, and much higher, structural unemployment number is beginning to gain steam. With technology and higher costs facing employers I remembered seeing an article on Zero Hedge about the state of the labor Market.
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.
More importantly was the next piece of the article which relates pretty directly to an article posted earlier regarding the corporate tax rates. Employers don't just snap their fingers and place you on their payroll in a high paying roll.
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.
I think it is incredible to look at the myriad costs and trade offs associated with new hiring and how many people think that businesses simply hire on whims. It is much easier for companies to simply contract out work or bring on temporary employees to fill needs rather than pull them on full time with benefits. Thus, I think we are looking at an age with higher structural employment and potentially a 'new norm' going forward. Oh yeah, and robots can now take your jobs. What do you guys think? Is this a bad change going forward or are we able to adapt and thrive in a new labor market moving forward?
Really cool article. I was thinking about this today when I read somewhere that a group of economists were polled and that a majority now believe unemployment will stay above 6% for the next 4 years (yes, I know, economists aren't the best at predicting the future).
If you think on a global scale, the vast majority of new jobs created will be in developing countries. Developed countries with relatively low unemployment will have to fight hard to keep creating jobs. I think this will become especially true as more people learn English worldwide. Why hire an American where you can get the same quality for half the price somewhere else? Right now, the quality level of foreign competition might not be up to par, but in several years countries with strong education systems will be crushing the US.
Bad for some, good for others. Good for the programmers that will need to maintain the robots. Bad for you if you're cultivating easily replaceable skills within the context of a big corporate machine
I'm just thankful to be employed.
Great post!
As always, say good bye to low skilled workers. I think our education is the bigger threat rather than economic slowdown or taxation.
Tempora eius est nam qui ut. Omnis in occaecati doloremque quasi magni hic.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...