Unemployment tax or $20000 reasons not to hire someone
boss.blogs.nytimes.com
boss.blogs.nytimes.com
No doubt you can others. While there may good and valid reasons for each of these requirements under law, is it a wonder (when you consider their cumulative impact) that startups will typically have x reasons of their own "not to hire," at least early in the company's history?
My impression is that similar issues cause the massive underemployment of the non-salaryman strata of Japanese twenty-somethings. Many of the freeters (people who bounce from part-time job to part-time job) are cut out for entry level work, but hiring someone is a lot like marrying them, so if you don't have the appropriate credential and a resume which looks like exactly what the company wants, they generally pass.
http://www.bloomberg.com/apps/news?pid=20601109&sid=a3Es...
Instead of being fired or laid off, employees are put into "Milton" type roles where they are made to feel useless, or intimidated into quitting/committing suicide.
There's a line between workers' rights & social safety nets and making the employment market extremely inefficient. I think it's fair to use public funds to retrain employees who have spent years contributing to society, or even to provide them a temporary income so they don't have to worry for their family's future. Still, people generally want to do useful work, and keeping unproductive workers employed hurts them, other candidates, and the nation as a whole.
You can buy private disability insurance while the government offers the same thing through the Social Security Administration, but not private unemployment insurance in any form....
While it smacks of communism to some, intuitively it makes more sense to pay the unemployed to do something, particularly if it builds infrastructure or trains workers in new skills.
You've got to be careful here, set up the incentives wrong and you get an unsustainable European welfare state (particularly for us, given that we provide so much of the world's security).
One other issue WRT a situation like today's: you've got to be careful that governments don't go bankrupt when revenues crater and social payments skyrocket due to a very nasty recession/depression.
Certainly projects like the Hoover dam or interstate system have many positive externalities that last a long time - but it's not always easy to come up with these projects, and the labour involved is only a small percentage.
When you divert productive capacity of the economy to unproductive use (such as building an unnecessary bridge) then society as a whole pays because of the diversion of resources (including labour and capital). The problem becomes more acute, because the 'shovel ready' projects are generally uneconomic ones - in many cases, if there was a positive return to be made from undertaking a certain activity, then the private sector will already have undertaken it.
I think the best use for the paid-unemployed is in things that are labour intensive and help with society. Helping clean houses for new mothers with small children and old people would be one thing, because these activities are economically unviable and you wouldn't be putting anyone else out of work.
Do you really think the average unemployed American is doing something any more productive than building an unnecessary bridge?
Also, these projects happen anyways, since in the absence of a US-level program to allocate underutilized human capital our representatives fight like hell to get funding for ridiculous projects in their states, for the sole purpose of providing employment. I'd personally prefer if these projects were devised and approved out in the open by a group responsible for their choices, rather than slipped into important budget bills at the last minute and rammed through Congress because nobody can do anything about it.
So yes, the average unemployed American watching the grass grow is doing something more productive.
A useless bridge will be a drain on the budget in subsequent years for little economic payoff in terms of improved productivity. It's an extremely inefficient allocation of resources, to the point that it's very likely that it's worse than almost all alternatives that don't involve building something.
Look, just read a textbook or two on macroeconomics. This isn't a new idea. You're just uninformed, sorry.
There are just always better things to do with that money than making something useless. There are lots of projects that could actually make business more efficient and attractive to conduct in the US.
But failing finding something useful to do with it, they could produce nothing and we'd still be better off. What you're talking about with building a useless bridge is a terribly inefficient form of welfare.
Think about it this way: By having those bridge builders watch the grass grow and sending them the money you would have paid them as welfare, sending the suppliers the money you would have paid them, you get the trickle-down effects you mentioned without the future cost obligations that come with actually producing a bridge to the middle of a lake.
So my original point stands. It's worse to produce something completely useless than it is to not produce anything at all.
Would T.J. Watson have had the motivation to found IBM had he not been fired from NCR and indicted by the government for blatant anti-trust schemes? Would Bill Hewlett and Dave Packard have founded HP if it hadn't been the midst of the Great Depression with few jobs to be found? How about Steve Jobs and Steve Wozniak - HP nearly killed Apple Computer in the cradle, because Woz didn't want to leave his employer.
The opportunity cost of employment isn't just a bunch of people sitting on their ass. It's a bunch of people sitting on their asses getting increasingly worried about where their next meal is going to come from. Eventually, some of them do something about it. Big risks are usually scary - it often takes some equally scary big shifts in your life to push you into taking them.
The one person you didn't mention that even remotely fits the profile of desperate entrepreneur is Steve Jobs, which you failed to include.
Living in Taiwan, I've seen absolutely amazing changes over a relatively short amount of time. In 1997, Taipei city was hellish. literally millions of people drove their scooters to and from work every day, traffic was terrible, commutes were slow and air was so bad that it was common to see people walking on the sidewalk wearing facemasks.
Now, there's a fairly extensive subway system that links to both a traditional rail system and a high-speed rail (top speed 300km/h) that goes to every major city on the island. In Taipei, commute times from one side of the city to the other dropped from 3 hours to less than one. People don't wear masks to walk on the sidewalks anymore, either. The system has been a major improvement economically, environmentally and in terms of quality of life. In fact, I don't think it's much of a stretch to say that subway system saved the city.
However, it was an investment. Nobody expected fares to pay the costs of constructing the subway directly. The government spent the equivalent of over 30 billion US dollars on it and while it was undoubtedly a good investment, it was one that only the public sector would undertake.
If we're going to talk about unintended consequences, we need to consider all sides: what is the unintended consequence of a system that provides no assurances to workers during economic downturns? I suspect the downside is quite harsh.
I suspect the downside to having employment-at-will, very modest unemployment benefits, and a liquid labor market exists. I also suspect that it can be measured in terms of objectively verifiable criteria, and compared with the alternatives. For example, I suspect that I can look in a US newspaper for a count of the number of cars burned last night by immigrants rioting over lack of economic opportunity. It will take me a whole lot of searching, because few newspapers publish articles titled "BREAKING! No riot today, either!"
Then I could look at the same number in a French newspaper. (100 a day on quiet days, spiking to over a thousand on New Years or during periods of mass unrest. You might think I'm exaggerating. http://www.time.com/time/world/article/0,8599,1869392,00.htm... )
Alternatively, if counting riots seems a little messy, I could look at unemployment statistics for those under twenty five. In the United States, for youths at large, it is about 11~12% right now. In France, it is over 20 -- down a bit from a few years ago when it hit 25%. For socially disadvantaged groups in America, for example black males without a high school degree, it is about 48%. For similarly situated folks in France (for example, uneducated immigrants), unemployment is close to total.]
I can go on if you want me to.
But if we're talking about curious, all-or-nothing thinking, I have to wonder why you're so obsessively focused on the French? A quick Google search tells me that the unemployment rate in Denmark (horrible social welfare state and all), is only around 5%. Perhaps the problems in France are specific to France?
Which would be difficult because I have about five minutes left on my lunch break and then it is back to the web programming salt mines.
One more thing. I don't know about the ethnic or age breakdown, but right now French and American unemployment percentages are same. The difference is the French unemployed have healthcare and other social programs, so they're better off, in many instances, than Americans.
A friend of mine was at the last Santacon in Paris, they were mistaken for striking workers...
Incidentally, the banlieus of Paris are worse than "the ghetto" of any American city. Except maybe Detroit.
It seems like the issue here is the way unemployment is funded.
Some people see a safety net as just that, and use it as a stop-gap while planning on future employment.
Others may see it as sweet free ride to milk as long and as much as possible.
Personally I would like to see entitlement to the dole based on education... The taxpayer has paid to educate everyone up to the age of 18. If someone throws away that opportunity and leaves school without qualifications they're unemployable, why should the taxpayer support them in that case?
Secondly, we're talking about 16 year old kids here. If there is one thing that is pretty much universally true about teenagers it's that they're not very smart. Ask your avg. 16-18 year old high school dropout about the connection between education and jobs and they'll no doubt give you a long list of people who did perfectly fine without a high school diploma. They turn on their TVs and see people making millions without any education at all. Those are their role models. Then they look out their window and see college educated people just as unemployed as they are. Many kids don't see the connection between education as jobs. Telling people who later in life realized they might have made the wrong choice "hey you had a chance when you where a kid, too bad if you missed it", is not doing anyone any favours.
It exacerbates the business cycle for very obvious reasons, and it also slows economic growth as it results in more conservative investment, and lower spending on the parts of both businesses and consumers alike.
The real world numbers seem to bear out that unemployment compensation of some sort is a good thing.
The real world numbers also seem to bear out that if an undue portion of that compensation must come from the former employer specifically, that it creates some unfortunate disincentives towards hiring in the first place, which reduce (or in extreme cases eliminate) the benefits.
In short, Patio1 is right in thinking that the French system has some drawbacks... but his claim that the French system is some sort of inevitable end result of worker rights is utter and complete rubbish. The problem is nothing to do with workers rights, and everything to do with the specific implementation.
(This is the recalculation theory of business cycles.)
A recession is caused when resources are systematically devoted to suboptimal purposes. For instance, we built too many houses and we just discovered they aren't worth much.
A laid off construction worker, auto worker or buggy whip maker may think he can still get his old job back. Generous unemployment insurance allows him to wait around for a long time, hoping to get back a job similar to his old job. However, absent unemployment insurance, he would be forced to take whatever he could get, thereby shortening the recession.
(Note: this doesn't dispute your theory of more conservative investment/spending decisions, it's just another countervailing factor that must enter into the cost/benefit calculation.)
This isn't a cut and dry argument either. That said, it's the reason that some unemployment compensation packages include or are dependent on job placement services and/or retraining efforts.
If you simply provide people with moderate passive income, the likelihood that they'll use it to update their skill set and change the direction of their career depends on a whole host of variables (satisfaction at previous jobs, age, industry, amount and type of education, union membership, other cultural factors.)
As such, I'd agree that for some people, income without retraining or mandatory placement services has a deleterious effect, but this is in no way a universal phenomena.
The detroit auto worker is pretty much the poster child for the problem you cite. This is because they tend to be on the wrong side of every variable I mentioned (low satisfaction, high age, salaried employment, a contract industry, relatively low formal education, higher vocational education, union members, and likely to be part of a generation that feels they are "owed" jobs.)
That said, their existence doesn't demonstrate that the programs are an overall drain, because they aren't representative of the average unemployed worker. They're skewed negatively in every dimension that matters.
Their existence does, however, reinforce the value of retraining services and mandatory placement efforts as part of a maximally effective unemployment compensation program.
In fact, ultimately I suspect that the variation from place to place is the exact opposite of what would be optimal.
As you say, Detroit auto workers are on the wrong side of every variable. I expect that they also vote for generous benefits. In contrast, a place with a hard working "get off your ass and get a damn job" culture will probably vote for stingy unemployment benefits even though generous benefits would not be (locally) harmful.
It's a bit of a flaw with a democratic system.
However, a proposed solution which addresses both aggregate demand and disincentives would be to make unemployment benefits as unpleasant as possible while still providing monetary benefits. For instance, we could create a social stigma around receiving unemployment benefits. Or we might require unemployed people to submit to weekly adversarial interviews about their job search at 3AM in a cold/hot building with no chairs.
There is however up to six months of probation during which you may let the person go for no real reason. It can unfortunately be a bit more complex than that and it's better to argument well when you fire even during the probation...
As for employment compensation, it's around 7% of what you pay to your employees. When fired people have one year of compensation from the public unemployment insurance.
I however think it's good that people don't end up with "nothing" when they lose their job, whatever the reason.
Our real problem however is not here I think, the real problem is that when I want my engineer to receive 78 €, I have to pay 178 € including all taxes. On these 78 €, the engineer will pay around 20% - 30 % of income tax (up to 50% if he really makes a lot of money) and we have a 20% VAT on just about everything.
fyi: I run my own company in France
Employment is certainly not "at will", but employers can fire for the usual reasons: economic causes, performance problems, incidents, the last one causing the employee to lose the safety net. I have witnessed mass engineer layoffs at a startup for economic reasons, and the employer was not on the hook for much. I have witnessed firing "for personal reasons" which can include differences about work tools or methodology. The ridiculous amount of money you cite is not huge at all, 20% of monthly salary for each year of work at the company (5 year with the company = one month of compensation).
The employee can contest the firing at the French equivalent of the work board, but it's usually cut and dried.
If that is what you are actually complaining about, about employment not being "at will", I do not have a good answer, other than it being a cultural difference that turns irrelevant in practice.
I am wondering what is going on around here, relative to France. Both in HN and Times comments I have witnessed only ignorance (not a single knowledgeable comment) on French employment, laws, and worse, attitudes. It's not a worker's paradise, and nobody feels unnaturally entitled to their job.
About the overhead, yeah, the patronal taxes suck badly.
The problem in France is that you CANNOT fire people without an excellent reason
The key point is without excellent reasons
The reasons you gave (economic causes, performances, etc.) are valid but are clearly defined by the law.
I'm sure you've witnessed people being fired from startups, but I'm also quite certain that these people could have gained more in going to court ("conseil de prud'hommes")
There's a new way of breaking a contract when both parts agree to discontinue the business relationship, but it generally involves negotiating a certain amount of money (again).
The amount of compensation for a lay off you're talking about is the legal minimum. It's called "indemnité légale". On top of that there is the "indémnité conventionnelle" which is defined by the "convention collective" you probably know about.
When I talked about insane amount of money it's when you're not able to give a good reason for the lay off. In which case giving one year of income isn't rare.
When you want to fire someone for "insuffisance professionelle" (which is "inability to perform "), you need to back that up with extremely solid proof. When you want to fire someone for "faute" (fault), you need to back that up. You need proof. And even when you have proof, you generally end up paying more if the person sues you for abusive lay off.
The problem is that the system is extremely rigid. When you have valid reasons for firing someone, even for fault, you need to be extremely rigorous in every step. If ever you did something wrong (forgot to send the warning letter, didn't formalize the proof well, there's an insane list of what you must do...), you might be force to reintegrate the person into your team.
I'd also want to assert (again) that I find normal that employees are protected and cannot be fired at will. Abusive employers aren't rare.
And last but not least I'd like to say that I never had to consider to let go someone in my life because I work with the most talented people a boss could dream to have, and I truly hope I'll never need to call my lawyer to assist me in the unpleasant task of firing someone.
I also don't buy your analysis of France. Large amounts of immigration always create a lot of unrest (just look at the otherwise pretty progressive Swedish).
If an employer knows they may lose money from claims of unfair firing, then they will resist hiring employees until they have sufficient funds to cover the cost of losing someone.
Anecdote in point : a member of my family runs a business. A new hire didn't work out, and after counselling them several times, they decided the person had to go. They waited until after Christmas, fired the employee, who said that they understood the reasons. The former employee found representation, came back and successfully won compensation for an unfair dismissal. The reason was that some paperwork had not been completed correctly during the firing process. The resulting legal costs and compensation meant that the position will remain unfilled for several months until the balance sheet position is restored.
It's the same law of unintended consequences that means rent controlled apartments actually decrease housing affordability in cities (apart from the lucky few). Employment policies like this decrease employment (apart from the lucky few). In both cases the results are the direct opposite for what they are intended.
In terms of a social policy : governments should cover minimum wages, working conditions and other safety issues. Compensation for unfair dismissal should be capped regardless of salary and paid out of a central fund taken from company income taxes.
That might be tough but that is life.
It's (thankfully) really hard to win an unfair dismissal suit since we're all 'at will' employees by default. You can fire someone because you don't like their shoes, don't like that they smoke, or even no reason at all (the handful of exceptions are 'protected categories', like race/religion).
IIANM this depends on your state in the USA.
Some research suggests that it really varies state by state (even the states that are generally 'at will' each have different exceptions) - so caveat my statement as appropriate for your state.
In this country, you can't fire an employee for any reason other than non-performance of written job duties, and only after three written warnings, and a whole pile of other paperwork. It's easy to get this wrong, and then open yourself up to unfair dismissal actions. The union representatives actively look for these types of cases to prosecute.
I'm pretty sure that this varies by state.
I agree in general. But why have minimum wages? The same line of reasoning as the one against rent control applies here.
(As an example, Germany does not have a minimum wage for most industries. It has lots of other `employee protection', that needs to be removed, though.)
And if that became the norm, I'm not sure the ploy would stay legally viable.
Added after reading the fine article: I'd really wonder if it would fly in Illinois. Surely the author has considered it?
However, you might have trouble getting people with families to take the job, especially if they're relocating.
And, yeah, I'd forgotten about relocation, that makes it a non-starter for a lot of people and types of jobs.
Companies that hire Permatemps [2] can get bit hard. As a regular contractor I work hard to keep that line very clear.
[1] http://www.irs.gov/businesses/small/article/0,,id=179115,00....
[2] http://en.wikipedia.org/wiki/Permatemp#Vizcaino_v._Microsoft
Think about that! Everybody should plan for occasional unemployment and there are two ways to go about it:
1. You save a year worth of expenses all by yourself, and live on that when hard times come.
2. You don't save, but the government saves for you (directly via payroll tax or indirectly via unemployment tax).
On the surface the two approaches are equal as far as worker is concerned. And yet! In the first case once you save enough you could stop saving and enjoy the surplus, but in the latter case you can't stop saving no matter how much you "saved" already.
Just one more benefit of working for yourself. Employment is such an archaic concept.
The rate you pay is based on past claims not to exceed 7.250%. How does he get $20000?
Surely the headline would lie for the purposes of exploiting partisan anger?
I think that if an employee is fired for cause, they should be forced to sell their organs to pay back the debt (and cost of finding a replacement worker) to their company. This would make small businesses more profitable, and it would be an incentive for people to work harder. It would also lower the cost of organs, allowing the ultra-rich business owners to get a replacement kidney AND own a vacation home.
What I meant to say is that I think business owners whine too much about money. If your business is not profitable, then it's time to do something else... not whine about how your fired employees shouldn't get unemployment benefits.
(I worked at a small company once, and all I ever heard about was how everything was too expensive. Health insurance is too expensive. Salary is too expensive. Taxes are too expensive. Guess what then, you aren't charging the clients enough.)
After reading the fine article: in Illinois, for cause == no unemployment, no taxes for the employer down the road.
http://www.paulgraham.com/gap.html
It might be convenient to paint all business owners as 'ultra-rich' but the majority of employment happens through smaller businesses, which generally aren't in a position to 'charge clients more money'. Ask someone who is getting a start-up off the ground why they can't just pay everyone more money.
It seems like the general consensus on HN is that The Government should subsidize startups and small-businesses Just Because, but that it's evil when the same government subsidizes the employee that didn't work quite hard enough and needs to eat food and live in a house while they look for a job they can do better. I don't get it.
(I bet if I wasn't so sarcastic when I made the organ-harvesting reference, I would have been upmodded!)
'subsidize your likely-to-fail startup with their own health' Not sure how to respond to that statement, but all paid employees are offered to exchange their time and effort for cash compensation. It's up to those individuals if the exchange is worth it or not. If there is a chance of a detriment to their health, then they'd need to factor this in.
I think you'll find that your downvotes are because you disagree with the majority of readers of this site, not because of tone or sarcasm.
If he argued that the article author was wrong in a civil tone with a thoughtful manner, I doubt he would have downvotes. There are highly upvoted comments on this very thread that disagree with the article author.
Having unemployment benefits is not optional. Even 3rd world countries have this. However, I don't know that charging the companies directly for the unemployment is the best. Where I live workers pay an "unemployment insurance". The employer pays it, but it's part of the compensation like vacation etc. So when an employee is let go he draws from this insurance, the company is out of it.
Yes, the best thing for the economy right now would be if all marginally profitable businesses tanked and their workers become unemployed. That'll fix things right up.
Clients have a choice too....