Thinking Entrepreneur
An owner’s dispatches from the front lines.
The August jobs report that came out last week showed no job growth, and now President Obama and lots of other politicians are talking about how to create jobs. But I’m not sure they fully understand what prompts a business owner to hire someone — and why so many owners are still reluctant to hire, even if they think business might be improving.
Jobs are created when businesses get busy enough to need more workers. Businesses get busier when people buy things. People buy things when they need or want them and have enough money. And this is where the problem lies. Many people do not have enough money right now — for all kinds of reasons. Some have seen the value of their homes fall precipitously which may keep them from moving or from improving their house. Moving and improving generates business.
Zero job growth last month does not necessarily mean that business activity has slowed. In some cases, even business owners whose businesses have improved have decided not to hire, but to use overtime, build a backlog, or remain understaffed — even though each of these steps can be painful. Paying overtime costs more money. Delaying shipments or being understaffed can give your competitors an edge. Why would business owners do these things? Because these steps are safer than adding someone to the payroll, and these days safer feels better.
Right now, given the stock market fluctuations, the constant stream of scary news about the economy, and the even scarier politics we see in Washington, business owners are slow to hire new people unless there’s a very strong need. Think about what the owner faces if the business doesn’t materialize to justify the hire — like the horrendous task of laying people off, which scares the staff members who remain and produces a series of other costs. Many of us are just now recovering from our last round of layoffs, both emotionally and financially.
I sell home furnishings, custom picture framing and art. Although all of these industries have been affected, my business has been improving, and I’ve hired a few people this year. But I’m moving slowly. I can tell you one thing that is not going to get me to move faster: a payroll tax break. Why would anyone take on a new employee because of a one-year break on payroll taxes? Some owners might say they would do it — after all, who doesn’t want a tax break? — but the reality is that in most instances the owner would have hired that person anyway. Either you need someone or you don’t. If the government is going to spend money on jobs, I’d rather see it fix the streets and bridges, which really does create jobs (and inject money into the economy) — although whether that’s a good idea right now and whether the politics are plausible is another matter.
To make sense of this, you have to understand why even an owner who sees business improving might be hesitant to hire. Consider this situation:
You interview someone who has been out of work for 11 months. Let’s say he was in his previous job for 20 years, and now he’s regularly being told by job screeners that he is overqualified for the available position. In a good market, this person would not be available. You think it might actually be a good opportunity to bring someone valuable to your company — even though, because of his experience, you will have to pay him more money than you are accustomed to paying. You think it might be worth the shot, but your company is still in a precarious situation after the last few years. What do you have to lose, beyond the salary? Actually, you have quite a lot to lose. In fact, if it doesn’t work out, you could easily end up paying more in unemployment compensation than you do in salary.
If the new hire spends more than 30 working days with you but you have to let him go either because it’s not a good fit or because you were overly optimistic about the economy, he is eligible to collect unemployment. That, at least, is how it works in Illinois; the rules vary by state. Many people don’t realize that the government is not paying the bill for most of that compensation; companies are. The more people a company lays off, the more it pays in unemployment premiums. (I explained how this works in a previous post.)
In the above example, taking a chance on this person could cost a company $20,000 in increased unemployment premiums over the following three years. It makes sense for an employer to pay that kind of money for an employee who has been there for years. I understand and appreciate that unemployment compensation is an important lifeline for people who lose their jobs. But for 30 days? That’s a lot to ask — and it might even be counterproductive. In this environment, it just might be the difference in a decision not to hire someone. Business is about evaluating risks and rewards.
But that’s not all. After you let this employee go, he can go to the Equal Employment Opportunity Commission and file a complaint that he was fired because of his age. You will have to hire a lawyer. His lawyer will call your lawyer to try to settle. You will think, settle for what? For giving someone a chance? You will probably win, but that could take years and thousands of dollars in legal fees. This is why it’s safer — remember, safer is in — to not hire anyone and to continue working with a short staff. Is this good for the unemployed? The economy? The businesses? Anyone?
So what could the government do to encourage hiring? Here are two small suggestions:
First, stop punishing businesses for giving someone a chance. How about giving employers a six-month window before the company becomes liable for someone’s unemployment compensation? How about five months? Or four? But not 30 days. Of course, employees shouldn’t be punished either. If they are already collecting unemployment when they take a job, they should be able to resume collecting it if the job doesn’t work out –- but not at the expense of the business that gave them another chance.
And second, make the E.E.O.C. dismiss frivolous claims quicker. We all know that there are bad bosses doing things that need to be dealt with, but the example I’ve given is not uncommon — and it puts an unnecessary strain on small businesses that don’t have a legal department or even a human resources person for that matter.
This is my short list. Will these steps solve the problem and ignite a storm of hiring? No. But they will create a more hiring-friendly atmosphere while we wait for what we really need — an economy with people ready to spend money.
Jay Goltz owns five small businesses in Chicago.
Article source: http://feeds.nytimes.com/click.phdo?i=fa161c489670eb48b420f4caf954bed5
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