Is Your Job an Insurance Fraud?

Your employer can't lose money forever.

We once reviewed a book which argued that employment is really a form of insurance against business failure.  When an entrepreneur starts a business, he bears the risk and the reward entirely himself.  If the business fails, he's worked all those years for nothing; it it works, he gets to keep all the money.

Ordinary employees enjoy neither the risk nor the upside reward; they are paid for their time at a flat rate.  If the business fails, they'll lose their job but they keep whatever salary they have already received.  If the business succeeds, they may get to keep their job but usually participate in the upside little if at all.

In this light, accepting a job is a way for you to say that you don't have confidence in your own abilities to start a business.  You'd rather let somebody else take that chance, and settle for a wage that keeps you alive but won't make you rich.  For most of us, this is perfectly rational: do you have the sales ability or strategic insight to let you start a successful new business?  Not very many people do, but we all have to eat.

Normal insurance works the same way.  Are you absolutely sure your house will never burn down and you'll never be mutilated in a car wreck?  No, so you buy fire insurance and health insurance.  Superman doesn't need health insurance because he knows he is invincible, but the rest of us have no such guarantee.

Risk calculations change over time.  Older people are less healthy than young folks, which is why traditional health and life insurance get costlier the older you get.  Similarly, the business and economic climate enormously affects the probability of entrepreneurial success.

My father played this game.  He worked in consulting and small-business startups when times were good.  When it looked like the economy was getting soft, he'd seek out a normal salaried job instead, though often still with a small company.  As America's economy has grown progressively grimmer, he's needed more and more solid protection; he now works for a giant company that is too big to fail.  That doesn't protect him from restructuring and mass layoffs, but it does make them far less likely overall.

In a sense, as risks of unemployment have grown, he has taken out more insurance.  The price?  Next to no chance of remarkable success.  Not many people become millionaires from toiling in a cubicle, but they can at least pay the mortgage.  In the depths of the Obama Depression, this is not to be sneezed at.

But Someone Has To Make Money Somehow

There's only one problem with this scheme: Ultimately, money has to be made somewhere.

If you personally are not competent to make money on your own, it's reasonable and fair for you to work for someone else who can.  A sales executive should be out selling, not wasting his time on paperwork; it makes sense for him to hire a secretary who may have no sales ability but can keep the records straight.  The secretary contributes to the overall success of the business even though she, herself, never brings in a dime.

Modern companies are full of people who don't make any money but their presence allows money to be made or at least not lost.  The accounting department makes sure money due is collected, no more money is paid out than ought to be, and that nobody is embezzling funds.  The legal department tries to make sure the company isn't liable to expensive lawsuits.

Unfortunately, our overweening government has forced companies to hire a whole lot of people whose only contribution is that negative one - their presence prevents bad things from happening, but doesn't contribute to good things.  The HR department makes sure the company follows employment law, which prevents massive fines and lawsuits, but if the government hadn't laid on those laws in the first place, you wouldn't need most of the people in HR.  They are doing work which needs to be done only because the government makes it so, not because there is any inherent value to any of it.

The trouble with today's economy is that so many small companies are losing money.  It doesn't matter if individual employees are productive and hard-working; if the company as a whole can't make money, they'll all lose their jobs eventually.

It can take a long time for a midsize company to finally fold.  Your humble correspondent has worked for quite a few small and midsized companies that rarely if ever made any money.  They were always full of hopes and dreams that somehow never quite came to pass.  Although it might take years, eventually the money ran out and the paychecks stopped.

There will always be business failures; the vast majority of businesses fail.  However, for people to have productive jobss, it's necessary on average for successes to outweigh the failures.  Right now, that doesn't seem to be happening.

No Place to Hide

Where are all the entrepreneurs who should be starting businesses?  They look at the Obama depression, say "No thanks!" and try to find a job.  There aren't enough jobs to go around because so many businesspeople say "No thanks!" when job seekers knock on their doors.

Everyone seeking a job is buying insurance, in a sense: they know they can't start a company on their own that can pay the bills, and they're hoping to hide under the umbrella of someone who can.  Except that, mostly, nobody else can either.  There are fewer and fewer jobs as companies arrive at the end of their rope and shut down after slowly shedding jobs for years on end.

The same thing is happening to employment as Obamacare will do to health insurance.  Under Obamacare, health insurance companies cannot refuse to cover you, even if they know you need a heart transplant that will cost a huundred times more than you'll ever pay in premiums.  As we've noted before, this will bankrupt the insurance companies; in a few years, we'll have national health insurance because there won't be anything else.

With a Presidential administration whose hatred of small business is so transparent that TV comics crack jokes about it, is that what we have to look forward to?  Small and midsize businesses slowly dying, leaving only giant crony-capitalist corporations following government dictats and, of course, direct government employment?

You're not allowed to say this, though the brilliant Thomas Sowell managed to, but in economic terms, that is the definition of fascism.

Petrarch is a contributing editor for Scragged.  Read other articles by Petrarch or other articles on Business.
Reader Comments

"The secretary contributes to the overall success of the business even though she, herself, never brings in a dime"

Sexist much?

May 7, 2013 11:53 AM

So true, and sad. Wasn't life meant to be full of wonder and beauty? Greed is killing us and we all just keep slaving away to keep the psychopaths rolling in dosh. I keep thinking I'll wake up from this bad dream but I know I won't. I'll probably die in my 80's at my desk.

May 7, 2013 12:09 PM

We don't have to die at our desk. We can open our own business, but as it was pointed out there's more and more disincentive to do so. Imagine two hundred years ago what our options were: either we joined our father's vocation (farm, masonry, etc) or were fortunate to take on an apprenticeship in some sort of skilled-labor shop. There were no college degrees that gave us career choices, we should consider ourselves lucky that there are people out there willing to give us jobs working for their business. I mean, after all, there is only so many of us that can have government jobs.

May 7, 2013 1:14 PM
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