Could Payroll Jobs Disappear?

04/19/2011 10:37 am EST

Focus: MARKETS

Louis Navellier

Editor, Blue Chip Growth and Emerging Growth

Higher taxes and health care costs could drive both businesses and workers away from traditional employment roles and toward “temp” work and independent contracting, says Louis Navellier of Blue Chip Growth in this exclusive interview with MoneyShow.com.

We’ve had a nice recovery in a lot of parts of the economy, but obviously housing and employment have been lagging. What do you see ahead...what’s the potential there?
 
Well, we’re going to create some jobs, because new claims on unemployment are below 400,000, and that’s an important threshold. [Claims did spike just above 400,000 last week, for the first time in more than a month, but the overall trend is down—Editor.]

But the real problem in the economy is that the government is only measuring payroll jobs. They’re not measuring independent contractors, or temps, so I think you have to look at the household survey and things like that.

I’ll give you an example. I’m unemployed—I’ve been unemployed for ten years. Somehow, I have a firm with a lot of employees. The reason is, Nevada put a payroll tax on and I chose not to pay it, so I haven’t gotten a W2 for a decade, and neither have a lot of my higher-paid employees.

Guess what happens when you do that. Instead of paying a lot more in Social Security and Medicare, you pay self-employment taxes every year, which are a lot lower.

So the government’s only measuring payroll jobs...and what they’ve done is put a lot of costs on business for having employees—like unemployment insurance is up anywhere from 12- to 40-fold, depending on what state you’re in. Businesses just look at that and they say, “You know if you were a temp, or a contractor, I’d save some money.”

I run a lot of union clients’ [portfolios], and they’re very upset that places like hotels will bring in foreigners on temporary work visas. They run ski resorts this way. The reason is, when their season is over for the hotel or ski resort, they say, “Hey, thank you for your help. We’ll see you next season.”

But if they hire an American or illegal alien, they’ve got to pay unemployment. The bottom line: they’ve put a lot of cost on having employees—health care costs, etc.

I have a friend who is a big labor lawyer up in the New York area, and he swears that come 2013, when the health care stuff kicks in, that payroll jobs might actually disappear.

Payroll jobs might actually disappear?

Well because no one wants to pay the benefits. And it will just all go contract.

Of course it won’t actually happen—there are government workers, there’s union contracts, and things like that—but the government is only looking at the payroll jobs and that just doesn’t explain the economy.

So what’s the answer for that? I mean, obviously some companies have held back from hiring full-time people for any number of reasons—some of them that you stated, others because they’re still a little afraid. What’s going to get them to start hiring more people full-time?

Well they’re going to hire, they just don’t want to pay all the benefits. We’re going to create some payroll jobs, but you can hire independent contractors, and you can hire temps. The kids, when they come out of college, learn that pretty fast.

Through internships. Unpaid internships.

Unpaid internships while they’re in college, and when they get out of college, it’s temp jobs. Then maybe after you’ve been there a year or so, you’ll get a permanent job. Then you’ll start to get some benefits.

Congress tries to help people. They’ve made businesses pay a lot of costs. We have to add things to our health plan now. I have to add substance abuse for alcohol or drugs to my employee’s health plan, and then in 2018 I’ll be rewarded with a Cadillac tax.

So when they start to layer these costs on, businesses are starting to push back. It’s a problem, and look how many exemptions they’ve given out already—oh no you really don’t have to comply with the health plan. So it will be fascinating to see what happens.

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