Why Employers Aren't Hiring

There is a growing disconnect in the labor markets. Unemployment remains high and hiring is slow, even when they have openings. As of June, job openings were up 26% from mid-2009, when the economy bottomed out. But during the same period of time, new hires rose only 5% over the same period. What’s the deal?

Economists, employers and job seekers offer a litany of reasons for the disconnect. Extended unemployment benefits can make people less willing to take whatever jobs are available. Some companies might try to lowball salaries. Many of the unemployed don't have the skills companies require. Housing troubles can prevent people from moving for work.

But the strongest case I’ve read so far about why employers aren’t hiring comes from an opinion piece published this past week in the Wall Street Journal by Michael Fleischer, president of Bogen Communications Inc. in Ramsey, N.J. From an employer’s perspective Fleischer’s story is compelling. From an economist’s perspective, "It's troubling," said Henry Mo, an economist at Credit Suisse in New York. "We need employers to hire more boldly to make the recovery self-sustaining, but we're not getting there."

Fleischer explained why he’s not hiring as he used to:

Meet Sally. Sally is a terrific employee, and she happens to be the median person in terms of base pay among the 83 people at my little company in New Jersey, where we provide audio systems for use in educational, commercial and industrial settings. She's been with us for over 15 years. She's a high school graduate with some specialized training. She makes $59,000 a year—on paper. In reality, she makes only $44,000 a year because $15,000 is taken from her thanks to various deductions and taxes, all of which form the steep, sad slope between gross and net pay.

Before that money hits her bank, it is reduced by the $2,376 she pays as her share of the medical and dental insurance that my company provides. And then the government takes its due. She pays $126 for state unemployment insurance, $149 for disability insurance and $856 for Medicare. That's the small stuff. New Jersey takes $1,893 in income taxes. The federal government gets $3,661 for Social Security and another $6,250 for income tax withholding. The roughly $13,000 taken from her by various government entities means that some 22% of her gross pay goes to Washington or Trenton. She's lucky she doesn't live in New York City, where the toll would be even higher.

Employing Sally costs plenty too. My company has to write checks for $74,000 so Sally can receive her nominal $59,000 in base pay. Health insurance is a big, added cost: While Sally pays nearly $2,400 for coverage, my company pays the rest—$9,561 for employee/spouse medical and dental. We also provide company-paid life and other insurance premiums amounting to $153. Altogether, company-paid benefits add $9,714 to the cost of employing Sally.

Then the federal and state governments want a little something extra. They take $56 for federal unemployment coverage, $149 for disability insurance, $300 for workers' comp and $505 for state unemployment insurance. Finally, the feds make me pay $856 for Sally's Medicare and $3,661 for her Social Security.

When you add it all up, it costs $74,000 to put $44,000 in Sally's pocket and to give her $12,000 in benefits. Bottom line: Governments impose a 33% surtax on Sally's job each year.
The disconnect between unemployed workers and jobs is likely to continue for some time. Hiring by small firms, which as a group typically account for a super-sized share of job growth during an economic rebound, will likely remain slow for a multitude of reasons, thanks in large part to the “employee surtax.”

Read the full article “Why I’m Not Hiring.

Comments

[Ira S Wolfe]

@ Cindy - thanks for the thoughtful comments and alternative perspective. I hope others will join in the conversation.

[Cindy Cover]

Hi Ira -

Interesting article and lots of true statements. But it's all about perception. Yep, it costs a lot to employ Sally. In an up economy, employers can't wait to brag about how much added value they provide employees. It's called recruitment and retention. In a down economy, we're all crying 'poor me'.

Another point to consider is the benefit attached to those slices taken from Sally's pay and the benefits you supply. I assume that Sally wakes each day in comfortable home, eats nutriious and affordable food, drives to work on safe, well-lit roads, goes to the doctor when needed, sends her kids to schools to be educated, recreates in public spaces, etc etc etc. And that FICA/Med you both pay lessens the chance that Sally will be living with you in her old age.

Are there horrible inefficiencies in government? Of course, it's a fact of running an organization with more 0's in its budget than we can count (and neither Democrats nor Republicans do a better job). But do we get value for our taxes? Ask an immigrant from a third world country about the value. Yes, it's expensive, it's often wasteful and it could always be better. But our system of taxation has provided a way of life we've all grown to love and would hate to give up.

[Matt Angello]

Hi Ira- Whether we like these governmental "surcharges" or not, the fact is that they have been in place for some time. Corporate balance sheets are extraordinarily fat with cash at the moment. They are not hiring out of fear for the dreaded "double dip" we hear about daily and other media hysteria. It also doesn't hurt that high profits, partially driven by lower labor costs and higher productivity have equaled some pretty sweet executive bonuses.And the siren song of legislative uncertainty is simply a red herring for timid leadership.