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BusinessAnalysisPast Article

Hiring When Money Costs Something

A vacant job and a line of credit are both decisions about time. The rate changes the arithmetic, not the job description.

By Diego Marro, Small Business Correspondent

New York1 min read

a tall building with columns and statues on the side of it
a tall building with columns and statues on the side of itPhoto by Francesco Ungaro on Unsplash

A small firm hires when the work is there and the cash can carry the wage. The wage is a stream of payments. If the firm is borrowing to make them, the interest is part of the cost of the hire. If the firm is using its own cash, the interest it is not earning on that cash is part of the cost too.

That opportunity cost is easy to overstate. The firm's cash does not earn the ten-year yield unless the firm actually holds a ten-year note, which most operating accounts do not. The relevant alternative might be a bill, or a bank rate, or zero. Name the alternative or do not price it.

Hiring is a cash-flow decision, and rates are published references. A moving yield does not by itself show that 'Main Street has stopped hiring.' That claim needs a survey.

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