Archives for December 2013

Obamacare is Creating a Part-Time America

Busy Waitress

(istockphoto)

We’re living through a period of profound change in America, for the worse. Today it hit home for this observer, while talking to a woman who is a waitress at Bob Evans restaurant.

She said that a few months ago, most of the full-time employees at her restaurant, and presumably at all Bob Evans restaurants, were converted to part-time employees, able to work only a maximum of 29 hours a week. That’s in order to avoid the $2,000 per-employee Obamacare fine if one’s hours go above that.

Imagine that – the massive shift of millions of Americans from full time to part time (Bob Evans is just one of thousands of businesses doing the same), caused by a specific government policy. One reads in history books and elsewhere about stark government policies having profound immediate effects on society, usually involving heavy-handed socialist states. But to witness similar upheavals going on in modern-day United States of America! Folks, it’s not your mom-and-dad’s America anymore.

Through this heavy-handed government policy, millions of people are getting pushed into poverty (as the U.S. government defines poverty) by being downgraded from full-time to part-time employees. And they don’t even necessarily get 29 hours. The waitress said the employees are routinely scheduled for just 26 hours a week, in case occasionally they have to work a few extra hours during busy times.

The waitress said she was fortunate in that her income is her household’s secondary source of income. But not so for some of her coworkers. Their income is their primary income. So having gone from 40 to 29 hours of work per week, their income declined substantially.

With lower incomes, they now may be eligible for welfare benefits such as food stamps. Multiply that millions of times over, as so many businesses throughout America convert their workers to part-timers. That’s probably one of the big factors driving the large increase in participation in food stamps and other welfare programs.

So Obamacare is dramatically expanding the welfare state in more ways than one.

In addition to expanding the ranks of those who are classified as poor and thus eligible for welfare benefits, middle-class Americans who never previously received government handouts in their lives will now receive the Obamacare subsidy, once they sign up for the program.

That’s certainly a coup for Democrats. They may be fretting now over the disruptions caused by Obamacare, but in the the long run a lot more middle-class Americans will be dependent on government handouts, and be more likely to vote for Democrats in order to maintain those handouts.

Of course, while it’s a coup for Dems, the country as whole suffers. Prompting more and more people to live off the work and toil of other people is a sure way secure a future of national economic mediocrity – and boost the ranks of the impoverished.

 

One Intern’s Bizarre Notion of “Subsidy”

minimumwageThere’s a recent Guardian article headlined, “Tax breaks for CEOs pay for million-dollar salaries: CEOs’ salaries are ballooning thanks to tax breaks that turn bonuses into government subsidies for corporate America”.

It makes two laughable assertions: that stock options are a government subsidy to businesses, and particularly bizarre, that the minimum wage is a subsidy to businesses. The latter is positively Orwellian, straight out of the Ministry of Truth: the state is imposing a regulation on you making it harder to run your business, and that’s a favor to you so you should appreciate the good efforts of the state.

Jana Kasperkevic, described as “the fall US Business intern for the Guardian US”, writes that “Many argue that there are two subsidies at work: tax breaks to keep CEO pay high, and a low minimum wage to keep worker costs low.”

Payment in stock options is incredibly complex for accounting and tax purposes, and complex topics can be easy to demagogue, which Kasperkevic faithfully does. To  get a feel for some of the complexity, read this. Here, however, I want to focus on the other main allegation: that the current national minimum wage is a subsidy to employers.

First of all when an employer is coerced by the government into paying a minimum wage above the market-clearing wage, that’s the opposite of a subsidy. It’s a cost – imposed by the government.

What Ms. Kasperkevic probably means to say is that welfare benefits such as food stamps are not only a government subsidy to a particular person, but also to that person’s employer, and faults the employer for accepting that government subsidy.

Kasperkevic doesn’t realize it but she’s actually making an indictment against the government. Her argument assumes that the employer is getting away with paying lower wages than would be the case without the welfare payment, which in turn assumes that if the welfare payment were removed, then the employer would be forced to raise wages by the amount of the welfare payment in order retain that worker. So under this situation the government is creating artificially low wages. Remove the welfare, and wages will rise, she implies.

Whether wages actually would rise is an open question with many factors involved. If not, then Kasperkevic is wrong – the employers are not getting a subsidy; only the direct welfare recipient is.

Meantime, Kasperkevic essentially says that coercing employers to raise wages by boosting the minimum wage would reduce government spending on welfare benefits such as food stamps.

While some people could become ineligible for welfare under this scenario, many other people would become newly eligible for welfare due to being laid off. If the minimum wage were raised from $7.25 to $10 per hour, a worker only would be retained if he or she produces more than $10 per hour of output. While many people have the skills to produce just above $7.25 per hour of output, they don’t have the skills to produce $10 per hour of output. In that case the employer would be losing money on that worker, and the latter would be laid off (unless the employer for some reason is fine with losing money).

So a higher minimum wage would result in more unemployed people, creating new demand for welfare benefits. Spending on welfare benefits, therefore, likely would not go down, but up. The reality of a minimum wage hike would be the opposite of what Ms. Kasperkevic implies.

A higher minimum wage can only avoid unemployment if all of the working population is skilled enough to produce output above the minimum wage. For example if the minimum wage is $7.25 per hour and all of the working population is skilled enough to produce, say, at least $11 per hour of output, then raising the minimum wage to $10 likely won’t produce unemployment.

But alas, large segments of the U.S. working-age population aren’t skilled enough to produce $11 per hour of output let alone $7.25 per hour of output, especially minority youth and those who can’t speak English. And it shows: unemployment among black teens is a mind-boggling 42 percent. Raising the minimum wage would boost that unemployment rate even higher (all other things being equal). And it would boost demand for welfare even more.

So in addition to a minimum wage boost being a cost, not a subsidy, to employers, it would be the kiss of employment death for low-skilled workers.