Fellow Patriot:

The voluntary financial generosity of Patriots — people like you — keeps our doors open. Please support the 2020 Year-End Campaign today. Thank you for your support! —Nate Jackson, Managing Editor

John C. Goodman / Mar. 9, 2013

What Obama Is Doing to the Job Market

Firms are awash with cash, but they're not hiring. What's going on? One place to look for an explanation is the policies of the Obama administration. President Obama's proposal to increase the minimum wage and the health insurance employer mandate are combining to destroy job opportunities for young, unskilled workers in cities and towns across the country. The minimum wage, currently set at $7.25 an hour, will jump to $9 an hour and be indexed going forward if the president gets his way. The Affordable Care Act (ObamaCare) is already the law of the land and its effects are being felt right now, even though the employer mandate doesn't go into effect until next January.

Firms are awash with cash, but they’re not hiring. What’s going on? One place to look for an explanation is the policies of the Obama administration.

President Obama’s proposal to increase the minimum wage and the health insurance employer mandate are combining to destroy job opportunities for young, unskilled workers in cities and towns across the country.

The minimum wage, currently set at $7.25 an hour, will jump to $9 an hour and be indexed going forward if the president gets his way. The Affordable Care Act (ObamaCare) is already the law of the land and its effects are being felt right now, even though the employer mandate doesn’t go into effect until next January.

With respect to the new health law, the Congressional Budget Office estimates the cost of the minimum benefit package that everyone will be required to have will be $4,750 for individuals and $12,250 for families. That translates into a minimum health benefit of $2.28 an hour for full time single workers and about $3 an hour for someone working 30 hours a week. For family coverage, the cost is $5.89 an hour for a 40-hour-a week employee and $7.85 an hour for a 30-hour-a-week employee.

These are not small changes. They can double the cost of labor in some cases.

The law does not specify how much of the premium must be paid by the employer versus the employee. But there is a government requirement that the employee’s share cannot exceed 9.5% of wages for low- and moderate-income workers and an industry rule of thumb that employers must pick up at least 50% of the tab. The economic effects are the same, however, regardless of who writes the checks.

Employers have four ways to reduce this burden: (1) the mandate doesn’t apply to firms with fewer than 50 workers, (2) the mandate doesn’t apply to employees who work fewer than 30 hours, (3) the employer doesn’t have to offer or subsidize family coverage and (4) rather than provide health insurance, the employer can pay a $2,000 per (full-time) worker fine.

There are going to be lots of firms that fail to grow beyond 49 employees. But be warned: If an individual owns, say, two or three fast food franchises, the IRS has signaled that it will treat their combined operations as a single business. Also, in calculating the number of full time workers, the IRS is going to count “full-time equivalents.” That means that two workers, each working 15 hours a week, will count as the equivalent of one full-time (30 hour) worker.

As noted, employers are already reacting to ObamaCare. In fact, there was a huge shift to part-time employment in the fast food industry beginning in January. The reason: ObamaCare will employ a 12 month “look back.” In deciding whether a worker is full-time or part-time next January (when the mandate becomes effective) the government will look at the average weekly hours worked in the previous year.

I believe this change is economy wide. As Catherine Rampel noted at The New York Times economics blog the other day: Compared with December 2007, when the recession officially began, there are 5.8 million fewer Americans working full time. In that same period, there has been an increase of 2.8 million working part time.

One fast food restaurant owner I talked with (owning 100 franchises) told me that the average work week for their employees has been reduced to 25 hours this year – compared to 38 hours last year.

Employees may be able to work part-time at two different restaurants – both of which avoid the mandate by switching to part-time labor. On the other hand, they may just choose to work fewer hours. The reason: When the effects of the tax law are added to the effects of ObamaCare, a moderate income family will face a 41 percent marginal tax rate.

As a Wall Street Journal editorial calculated the other day, letting part-time workers work more hours can be expensive. If a 29 hour-a-week employee works one more hour for 50 weeks that will trigger a $2,000 fine. Dividing the fine by the additional hours of work, that works out to a $40 an hour penalty.

Bottom line: employment opportunities are being curtailed by the imposition of ObamaCare. Things will be even worse if a 24 percent increase in the cash minimum wage is heaped on top of it.

Economists have traditionally believed that an increase in the minimum wage (as well as mandated benefits) causes unemployment. However, a study by David Card and Alan Krueger found very little employment effect in the fast food industry in Pennsylvania and New Jersey.

You wonder if economists ever talk to employers when they do these studies, however. Because of labor law and tax law, employment in the fast food industry has already been pared to the bone. When I was young, every restaurant had waiters and waitresses who brought food to your table. But this service has been priced out of the market in fast food by past increases in the minimum wage. Fast food restaurants are getting by with the absolute minimum amount of labor they need to supply their products.

If government imposes higher labor costs on this industry, the restaurants will try to make it up by raising their prices. However, if the customers won’t pay the higher price – as may be the case in poorer neighborhoods – the restaurant will have to close.

Moreover, in order for prices to rise in one market there must be a corresponding decline in other markets. For the economy as a whole, employers can’t raise prices on the average with no change in the money supply.

Who We Are

The Patriot Post is a highly acclaimed weekday digest of news analysis, policy and opinion written from the heartland — as opposed to the MSM’s ubiquitous Beltway echo chambers — for grassroots leaders nationwide. More

What We Offer

On the Web

We provide solid conservative perspective on the most important issues, including analysis, opinion columns, headline summaries, memes, cartoons and much more.

Via Email

Choose our full-length Digest or our quick-reading Snapshot for a summary of important news. We also offer Cartoons & Memes on Monday and Alexander’s column on Wednesday.

Our Mission

The Patriot Post is steadfast in our mission to extend the endowment of Liberty to the next generation by advocating for individual rights and responsibilities, supporting the restoration of constitutional limits on government and the judiciary, and promoting free enterprise, national defense and traditional American values. We are a rock-solid conservative touchstone for the expanding ranks of grassroots Americans Patriots from all walks of life. Our mission and operation budgets are not financed by any political or special interest groups, and to protect our editorial integrity, we accept no advertising. We are sustained solely by you. Please support The Patriot Fund today!

★ PUBLIUS ★

“Our cause is noble; it is the cause of mankind!” —George Washington

The Patriot Post is protected speech, as enumerated in the First Amendment and enforced by the Second Amendment of the Constitution of the United States of America, in accordance with the endowed and unalienable Rights of All Mankind.

Copyright © 2020 The Patriot Post. All Rights Reserved.

The Patriot Post does not support Internet Explorer. We recommend installing the latest version of Microsoft Edge, Mozilla Firefox, or Google Chrome.