High Labor Costs = Fewer Jobs

January 18, 2011

Most people intuitively know that the worst thing government can do in the middle of the deepest recession in 70 years is enact policies that increase the expected cost of labor.  Yet that is exactly what happened last spring, with the passage of the health care reform bill, says John C. Goodman, president, CEO and Kellye Wright Fellow at the National Center for Policy Analysis.

  • Right now, it is estimated that the cost of the health plan everyone will be required to have is $4,750 a year for individuals and $12,250 for families.
  • That translates into a minimum health benefit of $2.28 an hour (individual coverage) and $5.89 an hour (family coverage) for full-time employees.
  • In four years' time, the minimum cost of labor will be a $7.25 cash wage and a $5.89 health wage (family), for a total of $13.14 an hour.

Imagine you are an employer.  You certainly are not going to pay an employee more than his value to the organization, and competition from other employers will tend to prevent you from paying less, says Goodman. 

  • If the government forces you to spend more on health insurance, you will have to spend less in wages in order to pay for the mandated benefits.
  • For above-average-wage employees, expect wage stagnation for the next four years, as employers use potential wage increases to pay for expanded health benefits instead.
  • At the low end of the wage scale, however, the effects of this new law are going to be devastating -- $10-an-hour workers and their employers cannot afford $6-an-hour health insurance.

This is undoubtedly why fast-food giant McDonald's told the federal government that it was considering dropping its health insurance for 30,000 employees.  The next step will be to drop their jobs.  No doubt millions of other workers will be in the same boat, says Goodman.

Source: John C. Goodman, "High Labor Costs = Fewer Jobs," USA Today, January 16, 2011.

For text:

http://www.usatoday.com/news/opinion/editorials/2011-01-17-editorial17_ST1_N.htm

 

Browse more articles on Health Issues