The law of unintended consequences, the liberal edition

When I'm consulting with clients, I often tell them that to justify an employee's wages, they should be able to quantify a return of three to four times that wage. If they can't compute that, they might not be able to afford the additional expense.

What that means is that if you pay an employee $10.00 an hour you need to be able to quantify a return of $30 - $40 an hour either in increased sales or increased productivity/efficiency. The spread between three and four times is a result of either benefit packages and/or the capital intensity of the business.

Most lay people have no idea that just to cover the payroll itself is a 1.3 - 1.5 times the actual hard costs with payroll taxes and modest benefits. When you then lay on additional overhead, non productive time (ie NCAA Pools, sick days, training, vacations, etc), and pilferage/waste, you need to bring that number up.

What does this mean in the real world?

Take a minimum wage worker. Two years ago, that worker had to produce $16.35 - $21.80 in return for the business owner. In one swoop, those figures became $21.90 - $29.20.

If you don't think that companies do cost/benefit analysis of labor costs, think again. Remember the McDonald's coffee burn law suit? During the trial, it came out that the company did cost/benefit analysis of the temperature of their coffee v. sales and/or tort risk. If you don't think a company who does analysis of 1 degree of hot coffee doesn't compute the cost of $.10/ an hour on the cost of a Big Mac, you'd be wrong.

You also need look no further than the American tuna industry. America Samoa's exemption from the minimum wage was taken away and it took all of about six month before Chicken of the Sea closed their plant. (read the history here)

Can you still buy Chicken of the Sea tuna? In the words of Sarah Palin, You betcha!

But the jobs got moved to where the cost/benefit principle still works.

What seems most unbelievable to me is that the people most willing/gullible enough to believe in the "science" of global warming are the same people most likely to ignore proven economic theory and law.

So now we're looking at a long recession where the government is willing to give a credit to businesses for hiring at the same time they're looking to raise the cost of production by requiring mandatory health care, increased minimum wages, additional union protections.

The next time you eat tuna salad, remember that.