Monday, June 02, 2008

Working to Ensure a Recession

By adding more costly regulations to business.

This time, the focus is on forcing companies to provide up to 12 weeks of paid family leave.

There are all kinds of issues with this sort of thing. When critical workers go on leave, they have to be replaced or their work goes undone. Their replacement may not be as competent, so productivity would suffer. The replacement may need training, creating delays and additional costs. If the replacement comes from within the firm, the work that the replacement was doing must now be farmed out to other employees, or dropped. If a temporary employee is hired, in addition to the added salary expense, there’s the training costs and lower productivity as well.

Most companies don’t carry loads of surplus staff in today’s environment. They just don’t have a pool of workers available to just plug in as needed. And that assumes that the jobs are essentially interchangeable, and there’s very little specialization within the firm.

So, as the costs of employment rise, either worker output has to increase significantly, or real wages must decline, or jobs will be lost.

As mentioned previously, it’s time to meet Mr. Marginal Cost, and his cousin, Mr. Barrier to Entry.