The Bureau of Labor Statistics [BLS] reported last week that corporate America created a dismal 32,000 new jobs the previous month. Even so, President Bush, on the campaign trail, repeats his mantra that the economy is strong.
Without getting into an election year debate, Crabby Old Lady has a couple of bones to pick with the government and the media’s reporting of employment news which is so superficial as to be meaningless. (Now don’t go letting your eyes glaze over on this. It's important and if Crabby can take the time to figure it out, you can take the time to read it.)
There is no doubt in Crabby’s mind that if the real unemployment figures were told, John Kerry would already have a lock on the November election. Here is why:
The BLS reports each month on “initial unemployment claims,” that is, the number of people who sign up for a weekly stipend for which their former employers deducted a tax from their salary each month. An unemployed person is entitled to this stipend for 39 weeks. When it expires, that person is no longer counted as unemployed whether or not a job has been found. Does anyone have any idea, Crabby wants to know, how many who now collect no unemployment check are still unemployed and how much that would add to the current 5.5 percent unemployment rate?
Here’s another area where employment figures are skewed. The rule of thumb on the cost to a corporation of employing someone is that taxes and benefits add about 30 percent to the person’s salary. That is, if a company pays an employee, $50,000 a year, it costs them $65,000.
In a widespread and unreported scam that sends Crabby around the bend when she thinks about it, corporations skirt or deliberately ignore the law to avoid paying those taxes and benefits by misclassifying employees as independent contractors. The IRS and the Department of Labor have specific guidelines for those two classifications, but enforcement is spotty – rare unless a contractor files a complaint with the IRS.
And that’s the Catch-22. The IRS has a special form [pdf] to complain about misclassification. The complainant fills out one side, then the IRS sends it to the corporation who then knows the name of the contractor who complained and guess what? There is no regulation to keep the company from firing the complainant. How’s that, Crabby asks, for protecting workers’ rights? “Here you go, we’ve got a remedy for you if your company is screwing you, but they’re allowed to fire you if you use it.”
To be clear, not all contractors are misclassified. Some people choose to freelance and that is what the independent contractor designation is for. These people have more than one client; they are a one-person business paying all the taxes themselves, but with tax deductions available that misclassified, full-time employees do not have.
Here are some of the things that happen to a worker who is misclassified as an independent contractor. Crabby advises a Valium before reading:
- In addition to his own, the worker pays the corporate half of FICA (Social Security) and Medicare
- No unemployment insurance tax is paid by the corporation so when the contractor is laid off, he cannot collect unemployment insurance
- No benefits are paid. That means no health insurance, no 401K or other pension program, no year-end bonus, no employee stock purchase plan
- No paid vacation, no paid holidays, no paid sick leave, no paid family leave, no paid maternity leave, no paid personal days
Companies often have other employee benefits such as childcare centers, discounted homeowner’s insurance, discounted commuter tickets, discounted legal advice, even discounted pet health insurance which are unavailable to contractors.
In addition, if a contractor applies for credit of any kind – mortgage, home equity line of credit, a new credit card, auto loan – he will be denied because his employer will tell the credit checkers they have no record of him. The credit companies contact the human resources department but the “employee” is listed as a vendor in another department.
The company benefits, of course, by saving 15 percent of their employee costs for whatever number of “contractors” they have hired. In addition, this practice reduces the figure for their cost of doing business in their reports to Wall Street because their payroll costs turn up artificially low against revenue. Crabby would be interested to know how many Wall Street analysts take this into consideration in rating companies. (She also wonders how much the practice of hiring illegal contractors contributes to the vaunted U.S. "productivity" numbers because so many contractors who are doing a lot of the work are not being counted.)
With all that in mind, the “official” unemployment rate of 5.5 percent is make-believe, fantasy, illusion. It does not count both the unemployed whose benefits have expired nor illegal contractors who invisibly come and go at corporations without a single blip on the statistical radar. There are certainly other factors and Crabby is no expert on this topic, but if she can figure out this much, how much else could be hidden under a rug somewhere?
timegoesby.com is concerned specifically with growing old, so how does this apply? Let Crabby tell you.
It is one thing for 35-, 40- or 45-year olds to be forced in tough economic times to take whatever job they can find under any circumstances offered and if contractor-status is all there is, well - it puts food on the table and pays the rent. It is wrong, but Crabby has lived long enough to know that no matter how bad things are, sooner or later they will get better and there will be better jobs. People in this age group have time to catch up again before they are too old to work.
But older folks, from about age 50 on up, do not have the years to make up the difference. Individual health insurance can easily cost ten times what it does as a member of an employee group. Paying the company’s seven percent chunk of FICA and Medicare is a big loss out of a salary check. Missing out on a 401k or pension plan, stock purchases, bonuses, even commuter discounts means a lot less money to save for a rainy day – whether that be illness or old age.
Misclassification of employees is a widespread practice. It is deceitful, unfair and corrupt and will consign many people to a poverty-ridden old age. And it, together with dishonest and misleading unemployment figures creates a massive misperception of the labor market.
Crabby thinks it is time for somebody in the media to take on this topic and dig up the real numbers and consequences to real people.