Skills, Employment, and Energy Use

There are a couple of opinion pieces in the Christian Science Monitor that are interrelated in ways I wonder whether their authors have considered.

In the first piece economist Donald Boudreaux explains how statistics may mislead. The example he uses is the statistic you sometimes hear that on average French workers are more productive than American workers.

Not long ago, Corinne Maier boasted in The New York Times that “… in many years French workers have a higher productivity rate than their American counterparts.”

Measures of productivity do regularly reveal French workers to be more productive than American workers. So Ms. Maier, a trained economist, must be right to conclude that this statistic is “proof that you can work better by working less.”

In fact, she’s probably mistaken.

France’s labor regulations are much more burdensome than those in the US. By artificially raising the cost of hiring workers in France, these regulations make it unprofitable to hire the lowest-skilled workers. One result is that only higher-skilled workers get jobs in France. But because US labor regulations are less restrictive, a higher proportion of low-skilled workers find jobs in America.

With a larger proportion of highly skilled workers, France’s average productivity is bound to be higher.

and the structural rate of unemployment is higher.

In the other op-ed jobs activist Robert Walker proposes job creation (and reduction in oil dependence) by raising gas taxes and lowering “payroll taxes”

But let’s try a couple of fifth-grade level questions that really matter. For starters, should people be encouraged to work? Whew, that’s an easy one. Of course.

OK, how about this one? Should the US reduce its dependence on oil? Another easy one. Everyone this side of fifth grade knows that the US is consuming too much oil.

Great. Let’s try a question that’s only slightly more difficult to answer. Does the federal government get more money from gasoline taxes than it does from payroll taxes? The answer is no. Not even close. The federal gasoline tax brings in about $20 billion a year in revenues. Federal payroll taxes alone bring in more than $800 billion a year.

And now for a trickier question: If people should be encouraged to work and gasoline consumption should be discouraged, why do we tax work so heavily and gasoline consumption so lightly? By now, you may be scratching your head and saying, “Yeah, why is that?”

There is no simple answer to this question. Some might say that many Americans need their cars and can’t afford to pay more for gasoline. This is a valid point, but people need to work, too, and that doesn’t stop Congress from taxing paychecks heftily.

For most workers in America the “payroll tax” that’s most significant is FICA i.e. a tax to pay for the Social Security benefits of current recipients (sometimes mischaracterized as contributions to an on-paper Social Security trust fund). I don’t want to get bogged down in a discussion of the merits of Mr. Walker’s case. I’m in favor of higher gas taxes for a variety of reasons but I’m a little skeptical of his claims that reducing “payroll taxes” at the margins will have a great deal of effect on employment one way or another. Certainly members of Congress who recently voted for an increase in the minimum wage didn’t think so. The political possibility or fiscal responsibility of reducing or eliminating FICA is another question altogether.

So what’s the intersection between relatively low-skilled workers, employment, and energy use? Simply this. For each worker in the country there are certain costs that constitute a more or less fixed load: roads, water, sewer, the costs of educating their children, and so on. Is health care, effectively, a fixed cost, too? I don’t know but, clearly, there’s some floor at which health care is a fixed cost.

More workers, more costs for these fixed load items.

These costs are not born directly by employers—they’re offloaded onto taxpayers. If employers are also taxpayers, they may pay for some of the costs but in the enormous complexity of our tax system lots of employers are not taxpayers or their taxes don’t pay for the actual costs of their employees. I think that, in a perfect system, we would be able to recover the costs per employee either from the employees themselves or from their employers.

But our system doesn’t work that way and, as a consequence, we’re subsidizing employment of low wage workers (remember, in terms of the fixed load per worker higher wage skilled workers, since they pay absolutely more taxes than low wage workers, pay a higher proportion of this load, presumably the entire load or more).

And some floor level of energy consumption, particularly gas consumption, is buit into our system as well. More workers, more sprawl, more roads, longer commutes, more gas consumption.

As I see it the strategies of relatively more relatively low-skilled workers and relatively fewer higher-skilled workers are in competition with each other to some degree. Here’s how. Let’s say the work that needs to be done is sorting widgets. There are two different ways to sort these widgets: it can either by done by hand by relatively unskilled workers or it can be done with a widget-sorting machine. It takes more relatively-skilled workers to design, maintain, and operate widget-sorting machines. Which strategy is employed depends on the relative costs of labor (paying people to sort widgets) and capital (buying widget-sorting machines).

But all those more-or-less fixed costs associated with employees that aren’t born by employers are higher in the case of employing people to sort widgets than they are in the case of using a widget-sorting machine.

3 comments… add one
  • More workers, more costs for these fixed load items.

    I don’t believe I understand what you’re saying. Some of these costs can be thought of as fixed on a per cap basis, and others seem more fixed in an absolute sense.

    For example, whether people are working or not, we (US society) will provide certain minimums such as sanitation, water, and some basic level of education. There may be marginal costs in providing for more sewer lines to business sites, but there is some fixed cost below that. Similarly, while professional education (taken broadly) will increase with the number of workers, we will still be funneling all of those people through the K-12 school system. Again, that seems more fixed by the number of people, rather than simply the number of workers.

    I freely grant, however, that we are importing people as a means of aquiring cheap labor. In that sense we are definitely having to bear more costs for these particular workers and their families. But the only way to get around that is to reduce the population level.

  • “Acquiring” not aquiring. I seem to have lost the ability to type today.

  • Under this new regime, I don’t want to be on the lower end of the pay scale (so low that I don’t pay income tax) and have to commute to work.

    Even those that do pay taxes would be harshly hit by this anti-progressive tax.

Leave a Comment