Sunday, February 22, 2015

No, $3M in #supportlocalbusinesses spending doesn't equal thousands of jobs ...

Yes, it can get so frustrating ... the Facebook meme/political graphic/photo sharing issue, where someone tries to make some gallant point, possibly to be taken virally, to show that they are caring, knowledgable, or whatever.
But it really has become to dumbing down of America at this point especially when the graphics can be completely debunked with a little Googling.
Take this #supportlocalbusinesses photo that has been making the rounds since last summer but was clearly written by someone who has no clue what is going on in the economy in the United States. I mean, where to start ... First, I love this sentiment, don't get me wrong. I buy local whenever I can. But, unfortunately, the math is way, wayyyy off.
Let's start with this simple fact: $3 million a year extra into any economy doesn't create "thousands" of jobs never mind 1,000 jobs ... unless maybe in China where an employee is lucky to make $3,000 a year and there are no other taxes on the employees.
Let's build on this and assume that the $15 an hour minimum wage proposal that is floating around is a living wage and what is ideal for a basic, full-time hire (even though it isn't for a single parent with two kids in any community in New Hampshire. According to MIT's living wage calculator, you need $24 to $27 an hour for that!).
In order to create 1,000 $15 an hour full-time jobs, an entity would need more than $31 million in cash for the salary side of the employees ($15 x 40 hrs x 52 weeks = $31,200 x 1,000 = $31.2M), another roughly $2M for Social Security (6.2% x $31,200 = $1,934.40 x 1,000 = $1.934M), and another $452K for Medicaid (1.45% x $31,200 - $452.40 x 1,000 = $452,400).
More money would be needed for workman's comp insurance, unemployment taxes, and healthcare/ACA, which is now required. I'm going to call this roughly $4+ million a year in added expenses for 1,000 employees. If the employees are single, a good plan will cost about $300 a month; family plans would be more, so maybe $3.5M and change for healthcare costs and then another $500K for the rest of the costs. It would probably be less but this is an easy rounding.
In other words, in order to create 1,000 $15 an hour full-time jobs, about $38 million in cash - not sales or business, but complete profit, CASH, every year - is needed to cover just the expense of having employees. In other words, it's about $38,000 an employee to get to a $15 an hour full-time job.
The Bureau of Labor Statistics has a rundown from 2014 on what an employee costs a company here. Here's a short window into the basic costs:
Employer costs for employee compensation for civilian workers averaged $32.20 per hour worked in September 2014, the U.S. Bureau of Labor Statistics reported today. Wages and salaries averaged $22.13 per hour worked and accounted for 68.7 percent of these costs, while benefits averaged $10.07 and accounted for the remaining 31.3 percent. Total employer compensation costs for private industry workers averaged $30.32 per hour worked in September 2014. 
Below the private sector section, the department noted that government employees cost even more - nearly $44 an hour.
Using this data, $32 an hour, with $10 an hour for benefits, or about a third, my $38K cost to get to a $31,200/$15 an hour employee is a little on the low side.

So, how many jobs would $3M create?
Let's take this one step further: Let's say that $3 million extra was spent at local businesses rather than chain businesses and all of that money went directly into hiring employees. How many jobs could be created?
Using the math above, with rough estimates on some of the figures, $3 million creates about 79 jobs ... not thousands or even 1,000 ... 79 jobs.
And, in reality, it might not even create 79 jobs. Think about it for a second: $3 million shifted from one business to another could prompt no new hiring. This amount of money, broken down in a community in $100 increments might not lead to a single new hire. Most local, small businesses are already working in their stores or businesses whether people shop there or not. Increased sales to said business means more cash in the owner's pocket not necessarily hiring more people.
So, yes, great sentiment - let's all shop local as much as we can. But in reality, this action in a community might not create a single new job never mind "thousands" of them.

1 comment:

Mark de Zabaleta said...

An interesting precision ... well written ...