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.