A Nation of Part-Time Workers?

Jun 19, 2012

Will we be seeing more want ads like these?

While waiting for the Supreme Court to rule on the Patient Protection and Affordable Care Act’s (PPACA) constitutionality, the Washington Post’s Robert Samuelson comes out swinging by calling Obamacare “dreadful public policy."

First, he notes that the law is unpopular because "[g]iven the [PPACA's] complexities, people can’t know where they’ll get insurance and what it will cost." That's probably why a Reuters/Ipsos poll last week found that 57% of registered voters think “the healthcare overhaul has damaged the economy.”

Another reason from Samuelson is how Obamcare hurts the job market:

The [PPACA] discourages job creation by raising the price of hiring. This is basic economics. If you increase the price of labor, companies will buy less of it. Requiring employers to buy health insurance for some workers makes them more expensive, at least in the short run. Particularly vulnerable are low-skilled workers, notes economist Diana Furchtgott-Roth of the Manhattan Institute. Because the employer mandate exempts firms with fewer than 50 workers, there’s a huge incentive for firms to stop at 49, she says.

As I pointed out in May, this policy may lead our country to experience what's happening in France: a disproportionate number of 49-person firms, but how the fines are calculated create even stranger incentives.

The way that fines are calculated creates even more perverse incentives. Suppose an employer with more than 50 “full time equivalent” workers—a combination of full- and –part-time--doesn’t offer “affordable” coverage that meets the government’s minimum standard. Under Obamacare, that employer will have to pay a penalty for every full-time employee, minus a 30 full-time employee threshold. Part-time employees aren't included in the formula that determines the size of the fine. The employer could have 10,000, 20,000, 100,000 total employees, but if only 30 employees are full-time, no penalty would be assessed.

Logistically a company with only 30 full-time employees managing thousands of part-time employees sounds far-fetched. However, with this sort of perverse financial incentive, companies in many industries–-particularly those with low-skilled, low wage employees – will “do the math” and hire part-time workers over full-time workers. While this may keep human resource departments busy, it will cause many businesses to miss out on some economies of scale, as they devote more time and effort to hiring and training part-time workers. Think about managing 100 part-time workers each working 20 hours weekly, versus 50 full-time workers each working 40 hours weekly. And this certainly won’t be good for those people who want to work full-time but can’t because of this perverse incentive.

Surely creating a nation of part-time workers was not what the administration wanted when they signed Obamacare into law, particularly in this economy, but that’s what this law incentivizes employers to do.

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