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.
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.
In a self-employment example, many vendors in urban Thailand set up their informal food stall (a cart or a tent) for a few hours a day. Their net income is low, because what they provide–readymade food and snacks–is available in abundance, i.e. there are many competitors.
Nonetheless, because the cost basis of life is relatively low, modest earnings from a low cost, low-profit enterprise make the enterprise worthwhile.
Read More By Charles Hugh Smith . By Charles Hugh Smith.
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