26 February 2010

ESR on employment

Hacker community legend Eric S Raymond has a nice post up about two marginally employable friends of his who have fallen on hard times.
Armed and Dangerous | Eric S Raymond | Marginal Devolution

These are the people who go to the wall when the cost of employing someone gets too high. We’ve spent the last seventy years increasing the hidden overhead and downside risks associated with hiring a worker — which meant the minimum revenue-per-employee threshold below which hiring doesn’t make sense has crept up and up and up, gradually. This effect was partly masked by credit and asset bubbles, but those have now popped. Increasingly it’s not just the classic hard-core unemployables (alcoholics, criminal deviants, crazies) that can’t pull enough weight to justify a paycheck; it’s the marginal ones, the mediocre, and the mildly dysfunctional.

If that doesn’t scare the crap out of you, you’re not paying attention. It’s a recipe for long-term structural unemployment at European levels of 10%, 15%, and up. What’s even crazier is that the Obama administration wants to respond to this problem by…raising taxes and piling more regulatory burden on employers.
As Alex Tabarrok pointed out this afternoon, the Obama administration is making raising the costs of hiring an explicit goal, not just a side-effect.

I'd add that we've not only spent 70 years raising the overhead costs of employing people, we've also been raising the productivity of workers, so the minimum revenue per employee threshold has gone up as the revenue each employee can generate has gone up.  More overhead hasn't just been hidden by borrowing.  (In fact, I'd be surprised if rising productivity wasn't several orders of magnitude more important as an explanation.)  So the goal isn't just lowering the threshold of employing people, it's some combination of that and increasing productivity.

If you have not read Raymond's classic The Cathedral & the Bazaar I highly recommend it. It's available here in multiple formats and languages. At the very least it helps to explain why there are so many libertarian geeks (like Raymond himself).

(Via Arnold Kling, who is rapidly becoming my most-linked-to blogger. He's just on a huge roll recently.  About the above Raymond point, he says "health insurance costs could be a huge factor here (and don't tell me that justifies single-payer health care, because that would simply shift the employer's cost from the health benefits line item to the tax line item)."

For more on patterns in employment, check out Kling's post today on "Demand Stimulus in a Jones-Minsky Economy." I find Jones' story of employees as producers of organization capital rather than actual output very convincing.  That posts a more optimistic picture of the coming employment situation.)

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