Jobs – Have They Become the American Myth?

Today, when corporations or public sector managers hire new employees, they’re more likely to pick up 'temporary' workers to fill vacancies, rather than full-time employees.

Temporary workers do not create ‘enduring’ jobs that carry with them both state (workers compensation) and federal (social security) tax obligations and Human Resources benefit (medical) obligations, among many others. One hour spent reading newspaper employment advertisements brings a sudden realization that what are being offered throughout most of America today are “temps,” not “jobs,” and only part-time temps at that.

The temporary worker, called the “marginal worker,” is often first in the door due to corporate and government reluctance to justify and create new permanent jobs. They’re also first out the door when business conditions deteriorate or some written or un-written standard of performance is not being met.

Government job creation numbers and unemployment statistics would both be far different if the definition of a “job” were more narrowly defined to better differentiate between temporary and permanent employees. Rest assured, with an increase in the minimum wage, permanent employees by the tens of thousands will decrease and temporary workers will increase. (What is it, exactly, that Congress is trying to accomplish?)

The exponential rise in non-union temporary workers in the last decade is a clear sign that employers have adapted accounting principles to human resource departments. Corporations and public entities have shifted their labor costs from being a fixed cost to a variable cost. Rather than bring someone ‘on board’ and pay them a salary, plus traditional or negotiated benefits, companies keep as many non-union workers as possible in temp/flex positions whose workload and work schedules can be adjusted with the vagaries in demand.

With American companies lacking international competitive pricing power (the ability to lower prices significantly and still remain profitable), and input (labor) prices rising rapidly due to government and union regulatory interference with the free market, what can a company do to protect ever decreasing profit margins - short of moving overseas? Very little.

Unfortunately, there is no basis to believe any relief from Federal, State and local regulation, taxation and litigation will be forthcoming anytime soon, given liberal opposition to tax cuts and the collectivist tenor in both Congress and the main stream media. The lumpen who read the print media do not understand how ever increasing taxes and redistribution will render them little more than a servant to the State.

There appears to be only one answer for business and municipalities. The easiest way to boost corporate profitability (or to find more money to spend without increasing taxes, in the case of a municipality) is to lower the most burdensome fixed cost, i.e., labor, and particularly the costs of labor benefits.

It is especially important to recognize that the definition of ‘economic necessity’ has changed dramatically in recent decades to include new personal consumption necessities, real and perceived, such as state-mandated taxes and fees, all forms of insurance, transportation needs, communications ability, health care and education. The historical concept of ‘disposable income’ ignores these new financial requirements in our rapidly evolving society and fails to account for these increasing “fixed costs” to the average citizen and family.

As more and more essential family expenses are added to the real or perceived list of necessities, disposable income diminishes, and with it – consumption expenditures. Americans, faced with this economic nightmare, compensate first with two working parents, then multiple jobs, and now families are confronted with the reality that jobs are becoming more difficult to obtain. In the meantime, Congress, living extravagantly on the backs of taxpayers, is either clueless or without conscience. You would think they would call a cab.

Given the rush of money both into the stock and precious metals markets, and rising equity and real estate prices over the last several years, how could the standard of living decrease? The household sector has actually become the biggest buyer of stocks, buying 400-500 billion dollars of equities, despite the fact that real incomes were, and still are, falling. The answer is not complicated. Much of the money actually used to purchase equities and real estate did not come from increased corporate earnings and growing employee payrolls. It came instead from all forms of consumer debt. Even increasing taxes taken in at all levels of government under the guise of economic prosperity are not being funded by business profitability, but by consumption expenditures fueled by consumer debt.

Lower interest rates, engineered by the Federal Reserve, encouraged most consumers to re-mortgage their homes, many multiple times, taking cash out, which became “found income” as opposed to earned income. Predictably, mortgage debt rose as did all other forms of consumer debt.

Where did all the money go? It became an undisciplined and obscene "spending spree."

In most cases, the average household is still running a cash flow deficit, i.e., spending more on consumer goods (e.g., beer) and capital items (e.g., cars) by funding purchases at the margin with new debt, rather than making consumption purchases and paying taxes with household earnings from cash flow (wages) or savings. The "average" American household debt, including vehicles, personal loans and credit cards, and excluding mortgages, is more than $25 thousand dollars. The cash shortfall in funding these consumption levels has been close to 150 billion dollars each year for at least through 2006. At some point the debt must be repaid. When that day comes, the consumption of some (many) goods and services is going to have to be deferred.

If real wages of Americans have really gone down over the last ten years, why has the cost of labor to corporations gone up so dramatically? The answer can be found in the footprints of several culprits, most of which are traceable back to an endless list of ill-advised decisions of Congress, plus state and local governments, all of whom are treading ever deeper into socialist quicksand with regulation, taxation and redistribution of everything of monetary value in society, i.e., housing, transportation, medicine, education, employment, income, and food. Karl Marx would be proud.

Health insurance premiums have risen at double-digit rates, predictably spurred on by government subsidy of healthcare, with no end in sight. The same can be said for education. Other personnel costs (workers compensation, overtime, turnover, training, litigation, union negotiated benefits, and retirement) have also been rising at double-digit rates. This is potentially bad news for every American. Even though employees progressively receive less disposable income as employer personnel costs are shifted to the employee, employers are still under tremendous pressure to cut Human Resource benefits and costs even further or simply get rid of permanent employees.

If you accept as an economic fact that increasing the Minimum Wage reduces entry-level employment opportunities, why does any American think that increasing human resource benefits doesn’t similarly reduce mid-level employment? The more the "benefits" costs go up in America, the availability of mid-level jobs becomes fewer, and the less competitive America becomes with India and China and other emerging nations. Just as millions of people immigrated to America because conditions were not conducive to economic survival in their native lands, it is imperative now to understand that jobs are leaving America for a reason.

And here we have another little wrinkle in the fabric of today’s culture. Corporate managers and governments, both city and state, no longer have the luxury of loyalty – neither to their shareholders nor to their workers/employees. The leadership pays itself extravagantly (as does Congress) but treats employees (Americans) as inventory. The idea seems to be to cut costs on everything but themselves, to hire the cheapest employees, often illegal immigrants, just in time, in order to meet short-term objectives.

Nobody holds anything in business inventory anymore. There are no excess products on the shelves, no excess money in the bank, and particularly no excess employees on the payroll. Inventory is an expense item and employees in America have become inventory.

Sources of further cost reduction are already becoming harder to recognize! Eventually, business and government managers will run out of costs to cut, including employee benefits. Then what?

Don’t gloss over the question, “Then what?” The North American Union?

Red State Patriot

Comments are welcome at redstatepatriot@hughes.net. Please include the title of the article as your subject line. Selected responses, in whole or part, may be published (appended to the article).

Posted July 22, 2007 01:13 PM
Read more on Economics and Business