Wednesday, September 8, 2010

Labor Costs and Jobs

This past Monday was Labor Day. My original intention was to post a blog discussing labor and jobs in some fashion but I changed my mind when I was inspired to write about the presidency.

Fortunately, a letter in today's Inquirer brought the topic back to center stage. The following is my response to an article written by Kevin Hassett called "Americans make too much". In it, he makes the valid point that salaries can and do interfere with the hiring practices of employers. He posits that if American workers' wages were lower then employers would be able to afford to hire more people. And, with more people working, more money would be spent for the products and services that employers make/sell. Here is my response sent to the Inquirer today:

To the editor:

According to Kevin Hassett in "Americans make too much", more jobs would be created if employers were able to pay everyone less money. My experience with the various companies that I have worked for over the years, both public and private, indicates that labor costs range from 40-60% of fixed costs, so his assertion that if we kept that figure static but decreased wages per person, employers would have the luxury of hiring more people. And, of course, more people working will result in more people spending which will generate demand for the products and services that the employers are selling, completing the cycle. Sounds logical.

What amazes me is that Mr. Hassett targets the salaries of the lowest wage earners. He seems to believe that simply having a job equates to having the money to buy. I guess he is unfamiliar with the working poor in this country who have one, two, sometimes three low paying jobs just to make the bills. I am sure that they would laugh at his belief that by lowering their wages, their participation in the economy will somehow increase.

Perhaps Mr. Hassett's theory would be better served if he targeted those making $5, $10, $20 million a year, or more. Reducing those salaries, even by $1 million per person, and again, assuming our premise that overall labor costs would remain static, would allow for higher salaries for the rest of the work force. Now, the everyday family might just have that extra money to upgrade an appliance, eat at a local restaurant, or by that new car, thereby generating more demand for products and services creating the demand for more jobs.

Isn't it clear that we have lost so many jobs in America precisely because employers have turned to cheaper labor, both in this country and especially abroad? Is it Mr. Hassett's intent to reduce our standard of living to that of China in pursuit of everybody having a job?

Full employment should certainly be our goal. But full employment that results in the continuation of income inequity that streams more money to less hands, is not good for everyday working Americans or for the long term recovery of our country.


  1. Not surprising that Hassett is employed by a conservative think tank. Of course they would want to target minimum wage and people who earn less than $150,000/year. In fact, why not just create a maximum wage for people who aren't management level or higher. Imagine how many people a company could hire if they only had to pay $500 per week for a full-time position (and by full time, I mean 50 hours per week with 15 sick/personal/vacation days per year).

  2. Chris,

    Thanks for the comment. May I ask how you found my blog?

    More and more I am becoming convinced that there is an assault in progress on the wages and standard of living of the middle class/average worker. The crazy thing is that a movement such as the Tea Party which claims to represent the middle class, for the most part has bought into the propaganda that the very rich spew forth thereby helping those that have no interest in improving the lives of the middle class. Funny how the anti-CEO sentiment that pointed out the outrageous salaries of the top 2% with no regard for accountability has been replaced by anti-union rhetoric that casts teachers as the bad guys (Governor Christie) and pension busting plans to reduce payouts to the average worker. Money can certainly provide great distractions.

    Please feel free to comment whenever you like, and thanks again for reading my blog.