Thursday, November 3, 2011

the difference/divorce between worker pay, worker compensation, and the cost of hiring workers

A huge and oft-overlooked distinction: Workers, reasonably, focus on wage/salary. To a lesser extent-- and usually when forced to think about it once per year-- they look at compensation. And rarely do they look at what it takes to hire them. (And then there's the risk / rate-of-return calculation based on expectations of future productivity, costs, etc.-- all of which has had more variance injected into it by the policies of Bush, Obama and Congress.)

Employees may not realize it, but they are getting more expensive.

It isn't that their paychecks have suddenly started bulging. It's that other employment costs—like health and retirement benefits—continue to rise. Benefit costs in the private sector were up 4% year-on-year in the second quarter, more than double the 1.7% increase in wages and salaries. On Friday, the Labor Department's employment-cost index for the third quarter is likely to show this trend continuing...

The trouble is, this means employers are paying more for workers without actually paying their workers more. Higher benefit costs eat into profits without directly raising a company's output in the way hiring more workers would. In fact, this can actually discourage hiring. And the more that companies have to spend on benefits, the less take-home pay goes to workers...

Americans, in fact, sense this already. "People are worried about income security to an unprecedented degree,"  says Moody's Analytics economist John Lonski. Indeed, the share of those expecting their income to fall remains higher than the share expecting income to rise over the next six months, as per the Conference Board's October confidence survey. This situation never occurred in the survey's 30-year history prior to 2008. Now, it has become the norm. Low wages at least could spur hiring. But if employees are getting more expensive for other reasons, the risk is nobody benefits.


At November 6, 2011 at 11:06 PM , Blogger AmericanVet said...

Brilliant observation and all too true. As the Federal Government works hard to make energy costs high and puts more incumberances in place for business, more businesses are forced to offshore or defer hiring.


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