No Jobs to be Had?

An interesting situation has developed at the company where I work. Sales have picked up, though not yet to the pre-recession level. At the same time, one of our machine operators gave his notice this week. He’s moving on to a better job, and we wish him well.

But the impending vacancy means I have to go out and hire someone to take his place. The first place we decided to look was people who had worked for us in the past, but who we had laid off in the last year. After all, they would be known quantities.

Here’s where the interesting part starts. The first two people we called were working for $6 an hour, considerably less than what we would pay. It’s also less than the Federal minimum wage of $7.25 per hour. Both of these women were working cash jobs. Their employee was either treating them as subcontractors, but not submitting Form 1099 to the IRS, or else taking unreported cash income and paying their employees out of that stream of money.

Either one is tax fraud, of course, pure and simple. But no one is surprised that people cheat on their taxes. That’s dog bites man stuff.

What struck me is that both women turned down the job offer, even though the aftertax money from our position was greater than the $6 per hour. Why would you turn down a job that pays more than your current position? It turns out I had left out a factor in my calculations: extended unemployment benefits.

Although both women had been laid off from our company over a year ago, both were still drawing unemployment checks, courtesy of the Obama stimulus package. The combination of their unemployment benefit and their $6 an hour job exceeded the amount we were willing to pay. As rational economic actors, they were maximizing the utility of their work.

Conservatives will tell you that continuing to extend unemployment benefits provides a disincentive to work. Why take a job if you can continue to draw a check? Liberals will tell you there are no jobs available, so we have to keep providing benefits to people who have been laid off.

Based on my sample of two, I would argue that the conservatives are winning this argument.