Thursday, December 10, 2009

How Government hurts Job Creation

From a prior post, I discussed how jobs are created. To summarize, here is a quick list...

1. Someone starts a business (the entrepreneur)
2. He/She struggles to get it established and grow it.
3. If the enterprise succeeds and does indeed grow, he/she hires someone
to help with running and managing the enterprise.
4. As the enterprise grows, more help is needed to run it so the business owner hires more people.

In a nutshell, that is how it works. So it is important to remember that business start-up is the "seed" while products, services and...yes!...JOBS are the "fruit".

Therefore, our society (especially the government) needs to encourage business development and make it as easy as possible for business to flourish. In addition, we need to make it easy for businesses to hire. However, this is not reality.

government makes it very difficult for a business to flourish and to hire more employees. Think for a moment, what it takes a business to hire even a single person.

Make believe that you are a businessperson. Here is what you should expect:

1. You must be aware of federal labor laws that are voluminous and constantly changing. This includes (but is not limited to) federal immigration statutes,diversity mandates, special rules for hiring women, minorities, etc.

2. You must be aware of state labor laws that are voluminous and constantly changing. This includes (but is not limited to) state federal immigration statutes,diversity mandates, special rules for hiring women, minorities, etc.

3. Federal minimum wage laws must be complied with even if you think that the market value of the labor provided is not worth it.

4. Most states also have separate minimum wage laws that must be complied with.

5. You must file monthly/quarterly/annual payroll reports for federal & state agencies. Penalties for filing late or erroneously may apply.

6. The government mandates that you meet (where necessary) rules, reporting and fees related to workmen's compensation issues and insurance.

7. There are federal mandated payroll taxes that must be paid by the employer.
Example: The employer must pay his/her share of the FICA and Medicare payroll taxes which amounts to 7.65% on top of and in addition to any wages paid. Don't forget the state!

8. For some job categories, government mandates that your business must provide and or pay for certain conditions and special services depending on the employee and job function.

9. You must seek or have (pay for) legal services just in case your employee decides to sue you for anything that falls short of expectations and other potential issues related to health, disability, bias, workload, lack of recognition, unfair compensation, etc.

10. If your employee decides to take "family leave" you will have to pay them directly for non-work during a period that could exceed 12 weeks or indirectly to a temporary worker to cover job duties in the absence of the worker.

11. If you decide to fire that employee, the burden falls on you to prove your case. Depending on the reason and or the state or industry this includes (but is not limited to) properly filing the paperwork, providing substantiation for your case, expensive legal assistance to help you process the termination.

I remind you...THIS IS A PARTIAL LIST.

We can't ask small business to hire more folks and then make it much more difficult to justify doing so.

All of us need to understand that "wages" paid to a worker is not the same as the "cost" (and risk) of hiring and keeping that worker.

When you add up all the costs (direct and indirect) of hiring someone, it can easily be 40% higher than the wages or salary that the worker sees.


Please share these thoughts with others...especially if you want to see more jobs in America...not less.

Paul Mladjenovic

P.S. This is a major reason why I think that everyone should start their own home-based business as a solo entrepreneur. Part-time or full-time, it should be part of your money-earning strategies. Learn more starting a home business (click here).