Obamacare’s contribution to a part-time economy
This commentary originally appared in the Austin American-Statesman on January 5, 2014.
The current economic recovery has not been kind to many employers and workers, whereby a large weight of this historically slow recovery has fallen on the backs of those who would like to work full time but instead must accept a part-time position. Obamacare is at the heart of this phenomenon as employers have incentive to hire more part-time workers than during normal recoveries.
A refreshing part of an economic boom-bust cycle is the “creative destruction” that the Austrian-American economist Joseph Schumpeter described as essentially the cleansing of firms that results with the most efficient businesses in the marketplace and a reshuffling of workers so that they may be appropriately matched with their skill set.
While this creative destruction happens throughout the business cycle, it tends to be most cleansing during an economic bust after the bubbling up of different sectors during a boom. This cleansing keeps an employer’s budget lean and positions the employer to deal more effectively with changes in government policies.
Throughout the boom of the mid-2000s, we now know there were a number of bubbles throughout the economy (e.g. housing market, price of oil, stock indexes), and this inflated many firm’s profit margins and incentivized them to hire more workers, pushing the unemployment rate to a low of 4.4 percent in May 2007.
Things were looking rosy, but much of this boom was based on distorted signals from monetary and fiscal policies, leading to a bust throughout many markets and ultimately the start of an economic recession in December 2007.
Although the recession technically ended in June 2009, employers continued to let workers go after the bust to increase their profitability from dwindled revenues, and many firms closed. As employers continued to lay off workers, the unemployment rate climbed to a high of 10 percent in October 2009.
To complete this story, we must consider the fact that many Americans gave up looking for work, and underemployment skyrocketed.
In November 2013, the unemployment rate fell to a five-year low of 7 percent; however, the employment-population ratio of 58.6 percent and labor force participation rate of 63 percent are at levels not seen since the early 1980s.
Clearly, these data signal that the labor market faces many challenges, one of which is the large number of individuals who would like a full-time job but have had to take a part-time position for economic reasons (i.e. underemployed).
There are indications that part-time employment is declining. According to recent Rasmussen survey results of 623 employed adults, nearly 75 percent said they worked 40 or more hours, providing ammunition for liberals to argue, incorrectly, that Obamacare is not causing an increase in part-time employment.
Typically, an employer will decide to hire a worker based on whether their value is more than their additional cost. From the employer mandate in Obamacare that forces employers with 50 or more full-time equivalent employees to provide health insurance to their workers or pay a penalty, the normal marginal analysis of hiring an additional worker is greatly distorted.
The delay of the employer mandate earlier this year until January 2015 surely helped boost a firm’s choice to hire more full-time workers, and this has provided some evidence that there is no impact from Obamacare.
However, history teaches us that during economic recoveries there will be increased demand for goods and services, and employers tend to hire more full-time employees. After more than four years of a technical economic recovery, we should expect fewer part-time workers. Although there has been a decline, part-time employment in levels (7.7 million) and as a percentage of the working-age population between the ages of 25 to 54 (6.5 percent) remain near 40-year record highs, indicating something else is going on: Obamacare.
A good example of Obamacare’s effect on the decision-making process of employers is at Austin Community College. Recently, ACC decided to cut the number of hours adjunct faculty work to less than 30 hours per week so that they do not fall under the Obamacare umbrella of being forced to provide health insurance. This might be a good idea if based on the demand for classes and other market-oriented factors, but this is based solely, according to ACC, on the costs of complying with Obamacare.
The positive trend in fewer part-time workers for economic reasons is good for those who would like a full-time position, but this trend is likely to reverse course when the employer mandate starts in January 2015 and the creation of the “part-time economy” begins its ugly course in America.
A better path forward is to scrap the new health care law and replace it with one that is a market-based, patient-centered system that avoids the negative impacts on people’s lives by forcing them into part-time employment.
Wohlgemuth is the director of the Center for Healthcare Policy at the Texas Public Policy Foundation, a nonprofit, free-market research institute based in Austin. She may be reached at email@example.com.