Companies Spend on Equipment, Not Workers

Finally, the NY Times publishes an article that highlights the costs of employees. This is old news but the Times finally caught up. Mandated benefits, minimum wages, payroll and income taxes are all costs to hire people.

Workers are getting more expensive while equipment is getting cheaper, and the combination is encouraging companies to spend on machines rather than people.

Rather than offering more incentives, which are corporate subsidies and welfare, politicians should remove disincentives to hiring people.

This, however, is wrong:

Consider the booming 1990s, he says: Then, as now, capital was getting rapidly cheaper relative to labor, and then, as now, companies were increasing spending on capital more than on labor. But companies were investing so much money to begin with that labor spending still grew a lot. With a bigger economic pie, few cared how the slices were cut.

The 1990’s boomed because of two one-time events: the initial build-out of the Internet as a commercial enterprise — remember WorldCom and all those dotcoms? The rewards seemed to be higher than the costs and risks.  The second event was the computer conversion to handle Y2K — the year 2000 and after. Everybody who owned a computer had to buy a new one, convert their old one, or at least test their old one to ensure it worked after the calendar moved from centuries that began with ’19’ to ’20’.  This had to be done regardless of the taxes and regulations.

Here.

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