An excellent piece by  Charles Smith (Of Two Minds) – h/t to LewRockwell.

Labor overhead is all the labor-related expenses paid by employers: the vast majority of pundits, most of whom have never hired a single employee with their own money, tend to overlook the overhead costs paid by employers: workers compensation insurance (soaring), healthcare insurance (soaring), disability insurance, unemployment insurance, 401K or pension contributions, etc.

The “solution” in the Digital Revolution is to eliminate all labor overhead and transfer all these risks and expenses onto the free-lancer. As a free-lancer/self-employed worker, I am well-acquainted with these overhead costs: it costs $15,300 annually to purchase stripped-down healthcare insurance for my self-employed wife and I.

This is $7.66 per hour for a 2,000-hour work year. The total value of the labor overhead paid by employers for someone of my age and experience exceeds the $15/hour being trumpeted as a minimum wage.

In other words, it would cost an employer $30/hour to pay me $15/hour.

The net result of reducing labor to auctioned-off surplus is that the state, and thus ultimately the taxpayer, is paying the overhead costs. The person being paid $5 to shop at Target (or $50/day to deliver whatever the high-earners didn’t order through Amazon) for a top 5% earner can’t possibly afford $15,000 a year for healthcare insurance, much less all the other benefits paid by employers.

So they end up getting social welfare benefits for low-income people such as Medicaid, food stamps, Section 8 housing subsidies, etc. In other words, this form of menial labor is ultimately subsidized by taxpayers.

The person paying someone a menial sum to perform some service may think they’re “hiring” that person, but in reality the taxpayer is footing the majority of the costs–the real “employer” is the taxpayer.

In other words, this informal “work” is a simulacrum of paid employment. All the costs being offloaded onto the informal worker end up in the taxpayer’s lap.

How can this be lauded as a functioning system of employment? It can’t, because it isn’t.

Those who believe the Digital Revolution will create more work also overlook the realities of risk when it comes to employing people. Once again, I wonder how many of these people have ever hired a single person on their own dime, i.e. with their own money, paid the overhead costs of an employer and took the risks of hiring employees.

Here’s one example from real life: you hire a fellow cash-only (informally or through some sort of labor auction exchange) to clean the roof gutters on your house. He falls off your roof and is seriously injured. You may think your insurance will cover you, or the labor auction exchange’s claim of coverage will protect you, but guess again: you could be on the hook for a huge settlement/judgment that will not be paid by your homeowner’s insurance or the labor exchange.

Labor laws don’t disappear just because you’ve hired someone informally. Anyone violating labor laws is also exposed to lawsuits and claims, exploratory “fishing” or otherwise. How about claims of ethnic, religious or gender discrimination? Those don’t disappear just because you’re an informal employer.

Many people seem unaware that a $10,000 claim for violating labor statutes may cost $10,000 or more to defend in court (or in pre-trial legal expenses). You’re out $10,000 either way.

Few pundits seem to put themselves in the shoes of those performing menial tasks for their “betters” for minimal compensation. What are the risks and rewards for managing an injury (real or faked) for those auctioning off their labor for a few dollars?

Those within the insurance industry know that there is an entire class of people who claim injuries in department stores, etc. so they can settle for $5,000 each “incident”– and they get the settlement because it will cost the corporation far more than $5,000 to contest, investigate, go to court, etc.

How good a job will you get when the worker bid so little to get the work? Once again, few pundits seem to put themselves in the shoes of those performing menial tasks for their “betters” for minimal compensation. You want to supervise people who are rushing to finish the task so they can hurry to their next low-paying gig? No thanks; be my guest. From my experience, it will cost me more time/money to re-do the work that was done poorly than it would to have done the work myself and forget hiring someone for the lowest bid.

This is why I will never hire anyone again, no matter how low the wage or cash payment: the risks are way too high and the rewards far too modest. Anyone who’s been a “real” employer like I have knows the realities, risks and costs. Those who’ve never hired a single employee with their own money are ignoring the realities.

When I need some real work done, I hire licensed contractors who pay all the labor overhead costs and pay for liability and disability coverage. These are very costly, so the service is costly. But you get what you pay for.

As for hiring someone myself–I can’t afford the true costs or risks. It literally makes no financial sense to hire someone if you pay the full freight. I will hire formal enterprises that pay the full costs of their employees, but only when I can’t do the work myself.”