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Why Employment in the U.S. Isn’t Coming Back

If we understand the simple dynamics of value creation, total compensation costs and the cost-basis of doing business (general overhead), then we understand why employment isn’t coming back in the U.S.

by Charles Hugh Smith, Of Two Minds:

It is impossible to understand job creation without understanding value creation and labor/overhead costs. People hire other people when their labor creates more value than it costs to hire them.

When labor costs are high, the value created must also be high; it makes no sense to hire someone if doing so generates a loss.

When labor is cheap, the bar of value creation is lowered, and so the risk of hiring a worker is also lower: they don’t have to add much value to be worth their wage.

This is why you see many low-value jobs in developing-world countries. There are night watchmen on duty in virtually every parking lot and building in urban Thailand, for example; these workers are providing a fundamental value, “eyes on the street,” but it is a low-value proposition: no special skill is required other than being a light sleeper. The cost of their labor is equivalently low, but in a low-cost basis economy such as Thailand’s, a very low wage is still a living wage.

Read More @ OfTwoMinds.com

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