Mandating benefits for employees imposes costs on employment. The would-be worker bears the cost. It makes the worker more expensive to hire. The employer has to pay not only a salary but also a benefit. If you make it more expensive to hire people, fewer people will be hired.
It is no different from eggs at the supermarket. If they are $2 each, you will purchase fewer of them — you will economize. This is nothing but the law of demand: consumers will demand less of a good at a higher price than of a good at a lower price. A salary plus benefits amounts to a price that the employer must pay to purchase the work of a laborer. At a higher price, less work will be purchased by the employer. FULL ARTICLE
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But wait — let’s form a mathematical model (make sure it’s complex enough to get published, of course!) and test this old-fashioned reasoning.
For many jobs in this country, where wages are far enough above the minimum, employers at least have the option of lowering wages to compensate for higher cost of benefits. From this perspective, the overall cost of employment could stay the same, but this puts the employee in the position of being forced to buy a product (the “benefit”) at a price he would rather not pay.
“As it is, the imposition of new penalties on business will make them less, not more, likely to hire people”
On the other hand, such penalties will will make them more likely to FIRE people. I heard a lot of small business owners telling me that if Obama passes this health care reform, that they will fire all their employees, and they will do it.
This whole health care burden on companies and penalties ressembles a lot Roosevelt’s high wages policies and penalties against companies who don’t keep wages high. The result was widespread unemployment and famine.
Well, I think we are headed to the next great depression but this time it will be worse, it will be Obamageddon.
Forcing employers to pay for health care benefits is the absolute worst way to impose an otherwise misguided government mandate. This method ties the cost directly to the value of individual workers, which will have the effect of eliminating jobs in precisely the same way minimum wage laws eliminate jobs. Adding health care to individual employment costs allows calculation, which leads to rational decision making and a threshold for eliminating unprofitable jobs.
If the government were more shrewd, it would dispense with the pretense of private medicine and provide a truly socialized system using general tax confiscation. This would break the connection to individual wage costs and have less direct and dire consequences for low value laborers. By separating the funding of the boondoggle, employers could not effectively calculate who to get rid of because costs would be dispersed.
Of course, any system of government sponsored health care is inefficient and unjust, but some methods are more counter-productive and destructive. The current proposal is armageddon for the impoverished.
Mr. Rockwell writes: “for reasons that are unknown and can only mystify the learned person”.
I’m not mystified. Obama is intentionally trying to collapse our economy because that’s the precursor to implement Marxism. He’s a Manchurian candidate for Marxists like Ayers, Wright and ACORN.
As for Democrats, so are trying to do the same thing. Others are stupid.
And it gets worse, US Federal minimum wage is supposed to increase $0.70 to $7.25 in eight more days. According the the Dept. of Labor, these states will be affected most Alabama, Alaska, Arkansas, Delaware, Florida, Georgia, Idaho, Indiana, Kansas, Louisiana, Maryland, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Jersey, New York, North Carolina, North Dakota, Oklahoma, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Wisconsin and Wyoming
It’s a form of price control. It didn’t work for Diocletian and it won’t work today.
What happens to people whose labor is worth, say, $7.24 an hour? Anybody who hires them is taking a loss. But if nobody hires them, society loses out on $7.24 an hour of production.
End the Fed, what happens is that they get replaced by someone who is twice as productive for $14/hour, or they get replaced by machinery with similar cost efficiency, or their job is simply eliminated with no replacement as it is no longer economically justified (movie usher, elevator operator etc.)
This enriches the well-organized Group A (unions, privileged industry) at the expense of the unorganized Group B (all marginally productive workers), with the helpful side effect of rendering Group B even more eager to offer votes to politicians promising transfer payments.
It’s working as intended, but as long as we’re destroying the market, I’d like to see them crank up the minimum wage to $20 or beyond, just to see what happens. As far as I can tell, every mainstream justification for raising the minimum wage by one dollar applies even more strongly to larger increases.
Just thought you might be interested to know the minimum wage in Ireland and France – 8.7 Euros per hour or just over $12 an hour!! Ireland, as you may know, is bankrupt. The property bubble (which began when they joined the Euro) has bankrupted the economy. The construction sector was over 60% of the economy and now there are no jobs. Although there are concessions for younger workers – a 30% discount from the minimum wage for employees under 18, a 20% discount for employees aged 18 in their first year of work and a 10% discount for those in their second year – Ireland is now facing a generation of emigration. End of story really.
Gee, isn’t that then the answer to “why don’t we have Americans working for $1 a day just like in the Third World”. It’s simply due to the fact that the law prevents people from working $1 a day. Wasn’t it the Scholastics who relented to say “if there must be a minimum wage then it should only should cover the worker’s immediate necessities (i.e. food and drink).
“Wasn’t it the Scholastics who relented to say “if there must be a minimum wage then it should only should cover the worker’s immediate necessities (i.e. food and drink).”
Except a “minimum wage” doesn’t make it easier for workers to get their necessities. If they aren’t worth the minimum wage, they aren’t going to be hired in the first place. If they are, they would have been hired anyway.
Actually, what matters here isn’t the cost of labour (with the cost of benefits etc.) but its marginal cost. There is also an externality, the cost of funding benefits for the unemployed (in some countries), or of their predatory behaviour as, when and if they try to fend for themselves (in other countries), or of policing and/or jailing or even killing them to stop them doing that (in yet others). So it isn’t usually a free market in labour even before overt government interventions get factored in, and it is unclear how much worse those make things given that there were distortions in the first place – some of them might sometimes work against the others, as David Barker’s article pointed out.
People may be interested in one approach to unravelling these labour market distortions that I recommended in a recent submission to Australia’s Henry Tax Review.
“There is also an externality, the cost of funding benefits for the unemployed (in some countries)”
Of course, that just means that not only would some people not be hired, but others wouldn’t even open businesses when they otherwise would.
No, End the Fed, that doesn’t just mean “that not only would some people not be hired, but others wouldn’t even open businesses when they otherwise would”. There are quite a number of other ramifications as well.
But then you could argue welfare (even charity) amounts to a minimum wage – if a job pays less than welfare (or even charity) then the person has no intention of being hired. However t’is interesting some must presume that some people must be worth only $0.50 per hour or less. Apparently, even when the minimum wage is a token pittance it still ‘price some out of the market’ to some. It can become clear why some people might think slave owners might be a godsend – a slave owner who forked out money to own a slave has an interest to make sure the slave has basic necessities lest the owner lost out on his ‘investment’. A free empoyer, on the other hand, has no such incentives.
“If the government were more shrewd, it would dispense with the pretense of private medicine and provide a truly socialized system using general tax confiscation. This would break the connection to individual wage costs and have less direct and dire consequences for low value laborers. By separating the funding of the boondoggle, employers could not effectively calculate who to get rid of because costs would be dispersed.”
I think government is shrewd enough to stage this farce first with hopes that eventually everyone — business and worker alike — will beg for socialized health care.
Gil, that’s why slavery is one – but not the only – Coasian solution to the externalities I mentioned (Distributism is another). Both have considerable transition costs, unlike the approach in the submission I linked to – although that doesn’t rule out only using it as a transition to something better, which is my preferred option. But your reasoning is wrong; if they were rational, slave owners wouldn’t judge their slaves’ value on what they previously invested (that’s the sunk costs fallacy) but on their current usefulness or value in trade, after allowing for wear and tear etc. Without all sorts of regulations it just opens the way to putting them down like worn out horses – or to releasing them into the wild, where the old problems would reappear.
Vanmind, spreading the costs of benefits that way is part of the externalising process. It’s an easy slippery slope.
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