Paid by the Hour

By Lloyd Graff

I received an email recently from Steve Rose, a veteran of the machining wars who was educated in an apprentice program in England during the 1960s. Steve had a CNC training business in Cleveland for many years but now teaches Trig and programming while whiffing cutting oil again in lovely Olympia, Washington, where raindrops fall for two months straight.

Steve’s reason for writing to me was not to lament the wet, but to discuss the question of why so many jobs in machining go unfilled. In his opinion, wages are stubbornly low for people in the field, especially the technical school grads who he teaches and trains.

I have grappled with this issue myself for decades as I run a machine tool business and publishing business. I am always trying to figure out how much to pay employees in order to hold onto them. I also have to motivate the most productive people, yet not sow discontent among the marginal but still useful ones.

In my experience, we tend to not pay the best people enough while we pay too much on the low end. This hurts us in attracting promising young people.

I am finally trying to address the issue by hiring people when needed and paying them by the job, which probably means paying $30-$50 per hour for machinery rebuilding specialists who are very efficient. By doing this I avoid paying health insurance which would cost $10,000-$15,000 per employee. I also only pay for the labor when we need it.

I think that specialists in machining such as repair or setup people for Hydromats and CNC Swiss enjoy making $50 per hour while being paid to do a specific job extremely well.
It makes me think that one reason so many jobs are “unfilled” in machining is that businesses are organized in an old school, basically unproductive hierarchical system that actually overpays unproductive folks and underpays the truly outstanding people. If success is rewarded accurately and properly I see machining companies becoming more specialist oriented with experts making $50 or more per hour while being supported by $15 per hour assistants. There will be a mid-group of minor league prospects who have a chance to make it to the majors if they work hard and progress. Larger companies will have training programs and coaches to help promising candidates move up.

I am curious whether you think I am nuts in my analysis of the current and future trends of working in the machining realm. Will the cost of health insurance tend to keep the old wage system going or will it doom compressed wage ladders?

Question 1: How does health insurance affect your business or personal healthcare situation?

Question 2: Should factory workers be paid by the hour?

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17 thoughts on “Paid by the Hour

  1. AvatarJeff

    Health care is stifling small business as it stands now. Paying for items you don’t need and having the gov tell you what’s best never seems to work. As a small business owner, we have a hard time competing for good employees as they need insurance for their families but neither they nor the company can afford it as it stands today. People not working and getting support from the gov love Obamacare. Everyone else I know thinks its one of the worst pieces of legislation our Gov has ever drafted. Paying good hourly wages for solid effort makes great sense.

    1. AvatarJosh

      I’m involved in health insurance purchasing for our small business. I love Obamacare. We get better plans at a reasonable rate and myself and my employees have the best insurance we’ve ever had. It has also reduced the rate of premium increases, it seems everyone on the right likes to forget they were a thing long before Obamacare and were part of the reason for the ACA.

      Additionally, you say that the ACA promotes “paying for items you don’t need.” This demonstrates a profound misunderstanding of the insurance market. You’re talking about the fact that under the ACA insurance companies can’t offer bare bones “insurance” plans that are practically worthless. I know because I had one of them for many years and couldn’t go to the doctor even when I needed to. Under the ACA health care plans must provide a minimum of care which includes doctors visits etc. Many of the old plans would only cover catastrophic calamities and even then at rates that could bankrupt a family. I’m not quite sure how you can see that as a favorable plan.

      Further, you claim that the ACA plans are “things you don’t need.” I assume you mean things like doctors visits etc, which I would argue you do need. If you don’t want to go, that’s your own ignorant decision. You may claim that you don’t need health care beyond catastrophic coverage because you are young and healthy. This is a fallacy, no one is young and healthy forever, everyone gets sick and everyone dies and often times it’s an expensive process. Everyone needs health care coverage when they are young, because everyone gets old. You should be paying into the system when you are young and taking out when you are old. The alternative is a health care system that only works for the healthy at the advantage of the sick. Sounds great when you and your family are healthy, but no one stays healthy forever.

      Everyone you know might want to do some actually reading about the ACA and educate themselves about what it actually does and why it does it.

  2. AvatarJanet

    I agree. We are a small company and have to pay higher premiums while saddling our employees with $6-10,000 deductibles. We offer a bonus at end of year whereby those not getting paid health coverage get an extra premium (most of those who elect the option are covered by spouse.)

    1. AvatarJosh

      Sure would be nice if there was a single payer government health care system then wouldn’t it?

      1. Avatarrick

        OH YES!!!
        I want the people who run the Veterans Administration, the Postal Service, the Internal Revenue Service, and the people who spent $2.1 billion on the Obamacare website that had more crashes than a demolition derby.

        Where would the Canadians go for their healthcare while waiting a half year for an MRI scan in their “wonderfully perfect” single payer system?

        We could all be like our incredible Veterans dying, not on the battlefield, but waiting to be taken care of at the VA!

        Truly reducing costs via attrition.

        Can you say “soylent green”???

      2. AvatarAnother canuck

        It is true that Canadians can wait weeks or months for services that Americans receive in hours or days. It is not correct that our system is “wonderfully perfect” as it has many faults we bear & complain about. However, I and most Canadians are more comfortable with a less than perfect service knowing that someone who has less than me, or is marginalized in society, can go to the doctor or the hospital knowing they will not be turned away because they don’t have enough money. A society that has universal healthcare for all its citizens, paid for through taxation, may be a financially poorer society that waits longer for a “less-than-perfect-system” to help them, but at least it is a more caring and compassionate society.
        Private health care is more efficient. Just as any private enterprise is more efficient than a public enterprise. However, the Canadian health care system (public enterprise) can not discriminate based on any factor other than citizenship, unlike a private enterprise of any nationality.

  3. AvatarGeorge Newman

    Yes, health insurance is a burden for all businesses, especially small to medium sized ones. Why then are business people so against a single payer system like the rest of the developed world? Workers with healthcare are more productive. Agreed? Why should the companies participate in the healthcare system at all? This is a hold over from the post WWII economy in which companies had to incentivize workers to compete for talent. A single payer, transportable healthcare system that provides basic care to all and then supplemented with private insurance for those that can afford it is the way to go.

  4. AvatarBob Ducanis

    I agree with George. Why should companies be responsible for health care coverage of employees? I’m retired and out of the machining business, but in the 1990s and 2000s our most pressing concern was to be able to find a decent health care plan that wouldn’t break the bank. If any costs had to be passed onto the employees in the form of higher deductibles and higher premiums for dependents, that was the day I didn’t care to walk the shop floor. I always thought it was a shame that so much effort was expended on exploring insurance alternatives as opposed to researching new machining trends, new materials, new cutting tools, and new potential customers.

    Lloyd’s point concerning hourly wages and independent contractors is interesting, The screw machining business is highly competitive…….I’ve read somewhere that it is the closest thing to pure competition. When your success rate in bidding jobs is typically in the 15%-25% range, the labor rate factors into the machine hourly rate and I think there is a fine line between running your financials in the black as opposed to being in the red.

  5. AvatarRod Brower

    On Health Care Insurance, in my 39 years of owning and operating a small machine shop in Washington State premiums have always increased year over year by 7% to 20%.
    Non Stop
    Paying for 50 employees got expensive.( especially when we covered the whole family for all employees )
    The piece of mind that it gives employees is important to keep that worry out of there head while they are setting up or operating a quarter million dollar machine that is vital to everyone’s having a job.
    With the ACA it jumped about 30% and Co Pays / Deductibles got UGLY.
    George is correct with the single payer basic plan and then those who can afford and chose to can upgrade to whatever they want or need.
    Get it off the small businesses back.

    You have to pay a good living wage to Skilled People.

    Machinist are drastically under paid for there skill sets and dedication to learning everything that is needed to be a competent employee.

  6. AvatarJeff Jensen

    Large corporations would HATE the idea of single payer TRANSPORTABLE insurance. If your health insurance were transportable, and went with you wherever you worked, it would be much easier to change jobs or retrain for a new career. People wouldn’t have to worry about quitting a bad job, or getting laid off as they got older (and more highly paid) and losing their healthcare. We could make more reasonable economically based job decisions, rather than deciding based on potential health catastrophes. The economy would be better off as a whole, because workers could retrain and/or move to the fields and areas with better jobs. But the big corporations would lose, since they would have to actually value and retain workers.

  7. AvatarFrank Gibbons

    This is a very interesting exchange, I have run a small 12) person Distributorship for 39 years. We supply full coverage for all employees, and their families, we have worked with a Broker for the last 30 years to help with this maze of coverage, deductible and Lifetime Max. along with Prescription benefits and Life Insurance. Our average premium increase was 3~5% per year.
    Since the ACA our costs have Skyrocketed, we have maintained the same basic coverage for all Employees, our average premium increase has been 11% per year.
    Just wait Mr. Small Business owner with less than 20 employees when you, and your Wife turn 65, and go on Medicare, there will be a lot of cursing when you see your Medicare cost, along with your supplemental insurance, and oh yes your still paying into SS, and Medicare. And they are charging you $400.00 + for Medicare per month, and your Health Insurance is only on you, not combined with your Wife, (She has to have own Policy) how about aggregated, for you and Wife $$2,170. per month ! for Health coverage.?

  8. AvatarSteve

    ACA really sucks, I’ve been dropped & had to find a new policy twice. Oh but if you like your policy you can keep it–haha. My son & his wife just renewed end of last year & their premium went from $700.00 to almost $1,300.00 & deductible went up because there is only one insurer left in OK. I think it is about to go down in flames if something is not done to change it. Insurers are dropping out left & right.

  9. Avatarrick

    First time in the 60+ years of our company, we have had to require employee payment participation in our health insurance coverage.

    And what do you do with the young fellow who must now be paid $11 per hour?
    Misses the day after payday most weeks. Spends more time playing with phone than working. Fire him for someone who wants or deserves it? However, most new hires are addicted to their devices and an incredible aggrandizement of themselves.
    And the Government has mandated these raises, regardless of achievements, productivity, or performance. Pretty much a socialist system for the uninspired.

    Fear not, we all know so much will be eliminated with the ever increasing automation…

  10. AvatarSeth Emerson

    Can I ask another question? Wouldn’t a single payer system make our industries more competitive with foreign producers? Most of our off-shore competitors have government-run health care systems. (PS, I think the Postal Service, Social Security and Medicare are operating just fine. VA has a way to go.) If a floor-level coverage could be universal, (not paid for by your company) with the option for an individual to pay for a “Platinum Plans” available, would that make your small business more competitive?

    1. AvatarAndrew

      Seth, the Postal Service has continued to lose substantial amounts of money every year while the services they provide continue to decline. While Social Security is sending out statements saying expected benefits will be reduced 30% unless Congress does something to change it. I know my employer and myself are the only ones that contribute to SS for me, so where has my money gone??? If you took the money that your employer and you contributed to SS through out your career, and stuck it under your mattress, then paid yourself monthly for 20 years after retirement, you would receive more a month than you would from SS. I wouldn’t consider that working just fine. (have not experienced Medicare yet, so I cannot say anything about it)

  11. Lloyd GraffLloyd Graff

    Thanks for the comments. As usual I have learned from the contributors who really make this blog worthwhile. I am quite surprised by the advocasy of a single payer system by small business people but I am also hearng more doctors touting it.

  12. AvatarKR

    As an owner of a small shop in Silicon Valley it’s very difficult to compete with the high tech firms that offer free food, gyms, computer/tech help & repair, bike repair, etc., etc. Those same companies are the ones beating us up on price, demanding price reductions, or sending their parts to be made overseas. Many metal workers have left the area and/or left the trade. We’ve always made providing good benefits a priority and still have less expensive medical benefits for our employee’s than most other companies but it gets tougher every year. One of the ‘hidden costs’ of having coverage standards that cover ‘basic ‘ care that people don’t see is the increase in the recommendation of those services. Vaccines are free and the number of vaccines required has more than doubled since 1986 when the pharmaceutical companies were granted immunity from liability. That cost is covered strictly with premiums.


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