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The Independent Institute
Commentary

Why the U.S. Job Market Remains Terribly Bleak


Full time work is about to get scarcer. The reason? By hiring part-time workers who put in less than 30 hours per week, employers can avoid a mandate dictated by the new health reform law: either provide expensive health insurance or pay a fine equal to $2,000 per worker. Avoiding the mandate becomes even more attractive for low-wage employees, since they can get highly subsidized insurance in the newly created health insurance exchanges. According to the Wall Street Journal:

  • Darden Restaurants [parent of Red Lobster and Olive Garden] was among the first companies to say it was changing hiring in response to the health-care law.
  • Pillar Hotels & Resorts this summer began to focus more on hiring part-time workers among its 5,500 employees, after the Supreme Court upheld the health-care overhaul.
  • CKE Restaurants Inc., parent of the Carl’s Jr. and Hardee’s burger chains, began two months ago to hire part-time workers to replace full-time employees who left.
  • Home retailer Anna’s Linens Inc. is considering cutting hours for some full-time employees to avoid the insurance mandate if the healthcare law isn’t repealed.
  • In a July survey, 32% of retail and hospitality company respondents told [Mercer] that they were likely to reduce the number of employees working 30 hours a week or more.

Clearly the Affordable Care Act (ObamaCare) is a major factor holding back economic recovery. But it’s not alone. Other public policies enacted during the Obama administration’s first four years have been affecting the supply side of the market.

A new book by University of Chicago economist Casey Mulligan explains that through a major expansion of the welfare state we are paying people not to work:

[I]n the matter of a few quarters of 2008 and 2009, new federal and state laws greatly enhanced the help given to the poor and unemployed—from expansion of food-stamp eligibility to enlargement of food-stamp benefits to payment of unemployment bonuses—sharply eroding (and, in some cases, fully eliminating) the incentives for workers to seek and retain jobs, and for employers to create jobs or avoid layoffs.

Mulligan gives the example of a two earner couple—each earning $600 a week. After the wife gets laid off she obtains a new job offer, paying $500 a week. But after deducting taxes and work related expenses her take home pay would be $257. Since untaxed unemployment benefits total $289, clearly she is better off not working.

All in all, Mulligan estimates that about half the precipitous 2007-2011 decline in the labor-force-participation rate and in hours worked can be blamed on easier eligibility rules for unemployment insurance, food stamps and housing aid.

As Steve Moore writes in a review of Mulligan’s book:

The annual value in average benefits for not working rose to $14,000 per recipient in 2011—the high was $16,000 in 2009—up from $10,000 in 2007. Such increases were inversely related to changes in average hours worked. On average, Americans worked a stunning 120 fewer hours in 2009 than in 2007—the largest contraction in work effort of any recession since the Depression. Since 2009, work hours and labor-force participation have remained at record lows even though the recession officially ended in June 2009.

Mulligan notes that it was the collapse of the housing market that set off the financial crisis that led to the Great Recession. But our problems are not confined to housing. They are systemwide. For every one job lost in construction, five others were lost is other sectors. One thing that affects all sectors, however, is overly generous incentives not to work.

Another frequently heard explanation for the slow recovery is the Keynesian idea that there has been a lack of consumer spending—which caused businesses to cut production and lay off workers. Yet:

Mulligan shows that, during the worst of the 2008-09 troubles, most sectors “outside of hard-hit construction and manufacturing...increased their use of production inputs other than labor hours.”...“Businesses perceive labor to be more expensive than it was before the recession began,” Mulligan writes. The reason for the added cost was that easier requirements for benefits—even as the government was pumping “stimulus” money into the economy— unwittingly reduced the supply of workers.

Meanwhile, health reform will require family coverage that is expected to average more than $15,000 a year. For $15 an hour employees, that sum equals more than half their annual wage. Unless they move to part-time employment or pay a hefty fine, employers of low-skilled workers are about to get hit with mandated benefit that will increase their labor costs by 50% or more.

To make matters worse, employers don’t really know what insurance they will have to provide or what it will cost. The $15,000 number I refer to is an estimate by the Congressional Budget Office. And even though employers will have the option of paying a $2,000 fine, does anybody think the fine is likely to stay that low?

The uncertainty created by all this is possibly worse than the actual monetary burden.


John C. Goodman is a Senior Fellow at the Independent Institute and President and Kellye Wright Fellow in Health Care at the National Center for Policy Analysis. The Wall Street Journal and the National Journal, among other media, have called him the “Father of Health Savings Accounts.”

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