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Overhead or Head Count?

Roughly 11 million people are unemployed in the USofA, and there is every reason to believe that this will increase.  Every month another 600k or so workers file for unemployment insurance.  This figure doesn’t include those who do not have a full 40 hours of work each week but would like to – add them in, and the number might be twice as high.  If this grows substantially, any discussion regarding this as a recession or depression will be academic.  Stopping the job loss is likely to become the highest priority soon.

You can’t simply make companies hire people, however.  A WPA program of building roads and bridges might make a lot of sense, but it won’t pick up everyone and it certainly won’t work in the long haul.  What we have to look at is the overhead cost per worker, which is to say the cost above and beyond salary of keeping someone on staff.

In addition to a salary, a company has to pay 7.62% of a salary to FICA as their part of the tax.  If the worker gets health care or other bennies, those are also part of the cost.  Vacation isn’t productive time, so the cost of that pay (which we contractors don’t get) has to be added into the hourly rate.  Training costs, recruiting costs – all of this add in to the overhead per worker.

To see how much this runs, you can visit a handy calculator provided by Provaliant, a project management company.  Use your own numbers as you want, but the bare minimum I can get is a worker making $75k a year with 2 weeks of vacation and no training or other ancillary costs other than health care costs the company over $102k per year – an overhead of 36.5%.  You can try it with a lower salary, but the overhead percentage will go up. If you use the defaults Provaliant provides, you can get it up to 400% without trying too hard.

Is this real?  Yes, this overhead is very real.  It comes from a number of sources, including the demands of workers (based on what the market will bear), Federal regulations, and the cost of providing health care.  It gets to be a big number, no matter how you calculate it – and go ahead and put your own assumptions in.

If the Federal Government is going to be serious about providing jobs, it must tackle this problem directly.  That includes reducing payroll taxes, but logically it means assuming some role in health care as well.  Simple things like mandated training have a real cost associated with them that should be looked at.  This overhead is making it harder for our nation to develop a manufacturing base that not only makes stuff but provides good wages.

Actual recovery from a recession occurs when resources are allocated in a way that better reflects the new economic conditions.  That means that workers have to be able to change jobs, which is to say that they can find new jobs when they lose the old ones.  Making our workforce more fluid and flexible will allow that to occur fast and have lasting benefits for years to come.  This is nothing less than removing the barriers to entry that make the job market inefficient.

Job loss isn’t the most pressing issue yet, but a few more weeks like we just had and it will be.  The best way to handle this is to see what the job market really needs and deal with it appropriately.  The overhead per employee is clearly out of line, and must be corrected.  We don’t have time to ignore this as we wait to see what the downturn looks like.

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