Obama Policies Hurt Less-Skilled Workers Most

August 13, 2012

Americans on the lower rungs of the economic ladder have not fared well on President Obama's watch, say Michael Cox, former chief economist at the Dallas Federal Reserve and director of the Center for Global Markets and Freedom at Southern Methodist University, and Richard Alm, writer-in-residence at the center.

  • In the Obama years, high school dropouts have faced unemployment rates of 14 percent or more, well above the 8 percent of previous administrations.
  • Wages for these workers had been rising, but they've stagnated under Obama.
  • The record is similar for high school graduates, who are doing much worse under Obama than under previous administrations.

Intended or not, Obama's policies have been tilted toward the better-off segment of society, which suggests he's a practitioner of trickle-down policies that haven't had much trickle down. But it's important to understand why Obama's policies have left low-income workers in the lurch.

  • Not surprisingly, the key is job creation.
  • If salary plus benefits are too costly, firms will not hire.
  • Too often, taxes and government-mandated benefits saddle firms with substantial hiring costs, blocking firms' incentive to hire.

The Obama administration has imposed new burdens on the job-creating process. Perhaps the best example is the Affordable Care Act (ACA), which, among other things, forces employers with 50 or more workers to provide high-priced health insurance for their workers. It doesn't go into full effect until 2014, but companies already have to take its provisions into consideration in their planning and hiring decisions.

The ACA places a higher burden on low-wage workers. How so?

  • Median weekly wages of high school dropouts are $400 to $500.
  • Workers with bachelor's degrees earn $1,100 to $1,200.
  • The cost of health care is pretty much the same regardless of the workers' wage levels, but $100 more a week represents a lot steeper wage increase for a $450 worker than a $1,150 one.

Over time, employers might incorporate the $100 cost into the high-income employees' pay, but for low-income workers, doing this may be constrained by the minimum wage and other factors.

Result: The cost of low-skilled workers rises relative to higher-skilled employees. Companies will adjust their business plans to use less low-skilled labor.

Source: W. Michael Cox and Richard Alm, "Obama Policies Hurt Less-Skilled Workers Most," Investor's Business Daily, August 9, 2012.

 

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