Posted on 06/05/2013 7:11:37 PM PDT by SeekAndFind
Traders confused: is the job market improving, or not?
Markets were volatile again today, this time on signs that the jobs market may not be as strong as some hoped. A report on private sector employment by ADP was weaker than expected, as was an employment gauge released as part of a survey of purchasing managers in the services industry.
That is causing some to consider lowering their estimates for Friday's critical May jobs report.
This is confusing, because Fed officials have been talking about tapering their purchases of bonds as the job market improves.
So which is it? To add to the confusion, we got the Fed's Beige Book today, and Fed officials sounded a bit more optimistic about the economy, noting gains in autos sales, real estate,and bank lending, and also noting hiring gains in several districts.
It's true that if the job growth does not materialize as the Fed envisions, they can simply continue their program of buying bonds...or even increase it. But the enthusiasm with which some Fed officials are pushing the tapering talk is causing some alarm...the Dallas Fed's Richard Fisher even went as far to say that the 30-year rally in bonds was over. Strong words.
If that wasn't enough to worry about, the markets are again being held hostage to the dollar/yen trade. After weakening for almost seven straight months, the yen has been strengthening the past two weeks, and did so again today.
(Excerpt) Read more at cnbc.com ...
Well see you can "look" at it like this but to do so denies reality.
And the reason is "Risk."
"Risk? How is your risk going up?"
Each dollar I have to pay out to make a profit is a dollar more I risk. Like I said I can safely bet you have never run your own business. Here is something that is going to shock you. Businesses routinely fail and the main reason they do is because they couldn't judge the "risk" involved.
now again let us look at your example of increasing the wages 5 fold from 4 to 20. Now the Farmer at 4 is paying 2-3 cents for each head of lettuce picked and 10-12 cents for each at 20 bucks an hour allowing for fluction in pick rate and damage.
at the 3 cents you can safely assume the farmer will at least be at 7 cents to cover costs and make a profit on picking. Gas and equipment involved plus foremen etc.
Now if you increase the pickers wages to 20 how much are you paying the foremen? Same for the equipment driver etc.?
So those peoples wages will go up exponentially or guess what. People won't do the job and instead want to become pickers. (Sorry but that is the way it works.) Now let us add the other bits into the equation that you have failed to see.
Paying someone at 4 bucks an hour to pick (mostly under the table) gets you under some hurdles that will pop up real fast when a so-called living wage enters the picture. First the Fed gov is going to want its vig so now you will start withholding wages to comply with federal taxes and FICA which means an additional 7.5% added to the costs for the farmer (Matching fund required for FICA) and being that he must now withhold he has to keep detailed records and do lots of reporting this requires more employees and if pickers are getting 20 bucks and hour they will be at least that expensive to hire. Then of course there is the State withholding and the City/county income tax (depending on where the business is located)
Then the Unions will descend and of course they will start the costs escalating with paid vacations and sick leave and whatever else they can dream up. And why will that happen because now its worth it to the unions to risk their time and effort because there is actual money at stake.
So now that 20 dollars an hour has been increased to 30 even though the picker will see little of that extra 10 bucks.
Now the farmers' risk has increased exponentially because no only has his pickers wage increased he now has more employees where before he didn't need them AND those employees will get even higher salaries than the pickers.
So the farmers risk per head of lettuce has increased from 2-3 cents to 15-16 cents a head BUT his overhead for the whole operation has went up exponentially also but you want him to make the same amount of profit he did before instead of maintaining his profit "MARGIN" and that is exactly how to fail at business.
Business is ran on margins also known as percentages. And when you change the bottom line it affects the end price exponentially.
If the farmers costs per head goes up 5 times he is not going to just shrink his margins. If he does he is increasing his risks for no gain whatsoever. Smart Business people don't do that. Dumb business people do and go bankrupt. if the farmer was charging an additional 7 cents a head above the pickers 2-3 cents per head then if the farmer starts paying 15 cents to the picker the farmer will need charge 35 cents a head above that to maintain the margins and to pay for the additional costs that come up. (Like everyone up the chain wanting a raise because the pickers get more) So now that head of lettuce is not 10 cents when it is delivered to the co-op its 50 cents. And the co-op tacks on their margin of X% so now the cost of the head of lettuce is 50 cents plus X% co-op. Then the distributor gets it and now the head of lettuce is 50 cents plus x% co-op AND plus x% distributor. Then the Grocer gets it and its 50 cents plus x% co-op AND plus x% distributor AND plus x% grocer.
Also there are other factors. If Pickers get 20bucks and hour this puts upward pressure on other jobs. So now will trucking companies be able to hold truck drivers IF you can go pick lettuce for 20 bucks an hour? Less people wanting to drive trucks means upward pressure of truck driver pay. Thus increasing cost of transporting thing like... lettuce!
Also if lettuce cost go up exponentially the insurance on truckloads go up exponentially and so on and so forth.
It may seem simple to you but it is far more complicated. And if you start you own business you will find it out first hand!
“when there are 40 million people out of work and there are, the labor is cheap and they can lower wages accordingly.”
Wages are just a small part of the equation; the workers comp, social security payments, etc. are another. Until you can send American workers into a deathrtap like the garment factory in Bangladesh, those jobs will always go to Bangladesh.
Thanks for your reply Mad Dawgg.
We were talking about downward pressure on wages.
“We were talking about downward pressure on wages.”
I agree with your point about the high unemployment contributing to that; the government and business will not let that correct itself naturally - they instead insist upon infusions of tens of nillions of illegal aliens thrown into the mix to ensure the wages remain low. They’ve stepped it up with white collar “scabs” as well; what started in the tech field has now spread into accounting/finance (they just import them from Asia instead of Latin America).
I wasn’t aware of the accounting finance people. Figures.
Thanks for the note of agreement.
You’re welcome.
It is frightening that neither party wants to address the import of foreign labor (legal or otherwise); they are so afraid of hurting these groups that they are quite willing to watch the American workers’ standard of living plummet through the floor. They figure we have to vote for one of them (and they’re the same thing with cosmetic differences).
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