U.S. labor expansion likely to remain tepid

Years ago, I worked for a small consulting firm of about 12 employees. To ease the workload, I had a discussion with my boss about hiring. He explained the decision on adding personnel. He mentioned his simple rule of the “return on labor investment.” A well-run, healthy company will find a good return when an employee brings in three times his income. This covers total labor costs plus provides some profit, an important item in any business. When he or she brings in only twice the set wage, labor costs are about equal to return. Anything less will require the employer to seriously consider layoffs, depending on future business forecasts. Tax increases have little to no effect on hiring.

One can see the only reason for additional hires is the return on wages. This is why the U.S. labor expansion is tepid. Many international companies increase their labor oversees, where one might pay $1, not $15, per hour, assuring a good return on wages paid. Taxes are like all overhead costs and will require decision making uninvolved with job creation. I have heard time and again that if you want to make more money, get more people to work for you, but the new employee must do more than pay for himself. So much for the multimillionaire “job creators” worried about their tax rate.

David F. Baker