Hiring disincentives

If you want to hire someone to do some work for you there is really only one determination that you need to make. Will the person you are hiring produce more for you than he/she costs? When you introduce uncertainty into that equation, hiring slows down.

Over the last couple of decades we have seen a tremendous increase in the cost of health insurance. While other factor have been at play, each of the last few recessions saw what has been called jobless recoveries. There is a fairly simple explanation for this. When you are forced to let an employee go, it is both painful and costly since you have to pick up increased charges for unemployment. Clearly, for most companies, they don't engage in wholesale firings unless they see it as clearly the only logical move. So generally, not in every situation of course, firing is the last alternative. By the same token, once you have reduced your workforce the decision to hire is also the last alternative. The first thing you consider is whether you can cover the additional work via increased productivity or new technology. You consider if you can outsource the work to another company and let them worry about hiring and firing. If none of these alternatives are available, you will then hire.

Now the adaptation of technology and the outsourcing do create jobs, but generally not to the same extent as those lost and unfortunately not necessarily in this country. There is some factor that could probably be computed that would equate the loss of jobs vs a decrease in revenue and the subsequent increase in jobs as that revenue returned. I'm sure it is less than 1 meaning less jobs are created per dollar of revenue than are lost after a recession. Suppose the factor is .9 (and I suspect it is lower that that). It would mean the if revenue loss of 100 mil resulted is job loss of 100,000, a return of that revenue would only produce 90,000 jobs. To get back to where you were at a factor of .9 would require revenue growth from prior levels.

If you want to absorb those jobs, and increase the number of jobs overall one or more of the following has to happen:

a. Increase revenues
b. Find new growth industries
c. Alter the economics of hiring.

Now when you see the increase in health insurance and the current uncertainty surrounding what may happen over the next few years, the economics of hiring are getting worse, not better. To hire an employee and invest in his/her training with the hope of keeping them for some reasonable period of time, you really need to know that their costs are somewhat predictable. As long as there is so much uncertainty related to those costs as well as cost related to payroll taxes and medicaid, companies will be reluctant to take the final step and hire.

While it is not the only solution, the resolution of our ongoing health care initiative is one of the things we need to get hiring moving. If we really want to improve hiring, we should move those costs out of the equation completely.