Investing in Capital Versus Investing in Labor

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This article provides a platform for a single small business person to explain why he is investing in capital rather than in labor. He makes several points that reflect his perspective on his business. Government has provided subsidies for investing in capital but there are no subsidies for investing in labor. Furthermore, the labor force lacks the skills needed in his business and he hates to go through the expensive process of hiring people on whom he has to spend $7,000 to provide government mandated safety training. He also must provide expensive health insurance. Consequently, he is investing in capital in order to remain price competitive.

His story is interesting but one wonders whether businesses can't find skilled workers to do the things that dumb machines can do less expensively. If a machine can do it better it must be a routine task that can be programmed. We don't need highly skilled worker for that. We need skilled labor to operate and maintain the machines. That would add jobs not replace them. He also has a mixed view of government. I get the sense that he likes government subsidies but he is against government mandated safety training. He is also worried about the rising cost of healthcare benefits but I get the sense that he would oppose universal healthcare provided by government. In other words, should the views of a single small business person be used to frame a discussion on why we are having a jobless recovery?

The US has been running a trade deficit since the 1980's. Much of that trade deficit is the result of off shoring by US multinational corporations to take advantage of lower labor costs in other parts of the world. My guess is that capital substitution for labor has been less of a problem than off shoring. Major contract manufacturing firms have been expanding their labor forces despite the use of advanced capital in the manufacturing process. Moreover, there is a shortage of labor in some countries and that is leading to growth in wages. Government incentives may be the cause of our labor surplus but it probably has more to do with policies that began in the 1980's. CEO compensation shifted from cash, which is taxed as ordinary income, to stock options. Government obliged by cutting the taxes on capital gains to 15%. These changes in the incentive system reduced management concern for the multiple stakeholders in a corporation to an almost exclusive interest in managing quarterly earnings and the stock price. It has also put Wall Street investors into an emerging role in the setting of corporate policy, and even in the selection of corporate CEO's. Wall Street and increasingly corporate managers, have no nationality. Moreover, many view themselves as the only stakeholders that matter.