Thursday, December 17, 2009

Labor/Capital Mix and Pest Control

One thing I've noticed in my chosen profession is that there is a tension between the interest in doing a thorough, professional job, and an interest in keeping costs down. I'm in the Pest Control industry.

I go to these educational meetings and learn all these things our technicians are supposed to be doing for their customers: taking time to talk with the customer, dusting voids, inspecting for harborages, moisture conditions, and other conducive conditions. We're supposed to use our chemical solutions (hereafter referred to as "products") sparingly, only in those places where it is deemed necessary. Doing this takes time.

But then you've got these bean counters who are less interested in getting the job done right and more interested in how many accounts they get to bill relative to how much labor they're having to pay for. These people either don't know much about how pest control is supposed to be done, or they just don't care. Finally, these bean counters wield considerable power in this, as every every industry. Yes, even the Pest Control Industry could serve as inspiration for Dilbert comics. So the technician who takes his time to get the job done right gets a talking to, and is actively compared to those technicians who are able to do fifteen to twenty jobs a day. That's no more than a half hour per job, including drive time. That's barely enough time to quickly spray the perimeter. So that's all that ever gets done, unless the customer actively demands more.

It got me thinking, as I woke up this morning, about decisions businesspeople make with regard to labor/capital mix. The accountants in the industry, given the choice between more labor less capital (taking the time while reducing product use), and more capital less labor (general broadcast treatments that use more product but take less time), the outcome of the wrangling over time and professionalism is a preference for more capital. This may be because it is more efficient. But I also note that the government taxes labor (income and payroll taxes) at a higher rate than they do capital (capital gains, sales, etc.). This will definitely have some effect on the decisions people make with regard to the use of man hours vs. the use of materials.

So the solution to me seems simple: tax labor and capital at the same rate... preferably zero. This removes the government's stimulus to prefer capital use over labor, making a great number of industries less consumptive (without penalizing the many, many cases where more capital actually means more productivity). And I'm not saying no taxes at all: this is just another strike in favor of the Single Tax, which I have discussed at great length in other entries. Tax labor and people tend to use less labor, resulting in unemployment. Tax capital and people tend to use less capital, resulting in lower labor productivity and reducing opportunities in capital goods producing industries. Tax land, and people tend to use less land... and since land is the one thing people can't just make more of, that's the only way to make more land available for more uses, thus actually improving productivity.

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