It's Not Just The Minimum Wage, It's Also The Health Insurance Mandate
The policy wheels are churning as economists and policymakers debate whether raising the hourly minimum wage from $7.25 to $9.00, as President Obama has proposed, would have a negative impact on low-income jobs. But the minimum wage hike must be added to another costly Obama mandate on business: the health coverage mandate that begins in 2014.
A full-time worker (40 hours per week) earning the current minimum wage makes about $15,000 a year. (Why the president claimed it was $14,500 in his State of the Union address is a mystery — just like most of his economic numbers.)
Arbitrarily raising that wage to $9.00 an hour would increase their income to $18,700, a 25 percent increase.
But that’s not the only government-mandated increase staring employers in the face. ObamaCare requires companies with 50 or more full-time employees (or the part-time equivalent) to provide their workers with health insurance beginning next year. If employers choose not to, they will be required to pay a $2,000 penalty (or is it a tax?) per employee. That’s about $1.00 more per hour per full-time (at least 30 hours a week) employee.*
Thus, the cost of both mandates will be at least $5,700, a 37 percent increase to employers — and that’s if the employer doesn’t provide coverage.
According to the Kaiser Family Foundation’s Employer’s Health Benefits 2012 Annual Survey, the average cost for employee-only coverage was $5,615. An employer paying, say, three-fourths of the employee’s premium will spend about $4,200 per employee.** Add that to a $3,700 pay increase and that minimum-wage worker just got a $7,900 raise, a more than 50 percent increase.
Those defending the minimum wage increase smugly assert, “What else can employers do? They have jobs to fill, so they will have to pay the price.” Such responses demonstrate their complete lack of understanding of the market.
For those who deny the combined impact of the minimum wage increase and ObamaCare mandate will affect who and whether employers hire, ask yourself this question: How many of you could demand your employers pay you 50 percent more and still keep your job?
The vast majority of studies assessing the impact of an increase in the minimum wage conclude that it hurts job prospects for young, low-skilled workers — who already face a 23.4 percent unemployment rate — and that it disproportionately affects young minority workers. And ObamaCare’s coverage mandate will only exacerbate the negative consequences.
The president who never had to meet a private sector payroll may not understand it, but employers will.
One alternative is technology. The U.S. has a long history of creating and adopting technology to take the place of human labor. It happened in agriculture and it’s happening in manufacturing. Making the switch from human labor to automation only makes sense when the cost (and benefits) of the technology is equal to or more than the cost of a worker. Well, the cost of the new technology is going down even as Obama is driving the cost of labor up.
And while robots that replace human labor have been very expensive, that’s changing. In a recent Quartz article entitled, “How robots are eating the last of America’s — and the world’s — traditional manufacturing jobs,” author Christopher Mims explains that robots used in manufacturing have generally cost $100,000 or more. But a new easily programmed robot named Baxter from Rethink Robotics can do a lot of repetitive manufacturing work, and only costs $22,000 — once.
With Obama’s minimum wage hike proposal, workers would be making $18,700 annually. And with his insurance mandate costing employers, say, an additional $4,000, well, Baxter begins to look like a bargain. Plus Baxter won’t be eating up much of his workday on Facebook (we hope).
Everyone makes economic choices in their personal lives. If the price of gasoline increased by 50 percent overnight, many people would find a way to use less gas. If the price of coffee increased by 50 percent overnight, many people would look for reasonable substitutes, like tea.
Employers are no different when it comes to labor. If Democrats are as successful in raising the minimum wage as they were in imposing the costly health insurance mandate, many employers will either find a way to use less labor or a cost-effective substitute.
Anyone who has ever run a company would know that, which may be why the president just doesn’t understand.
* Actually, it won’t be exactly a one-on-one relationship. The law allows employers paying the penalty to subtract 30 workers from the total. So if an employer has 200 non-covered employees, it would have to pay the penalty on 170 of them.
** ObamaCare has caps on how much an employee can pay out of pocket for coverage that interact with the employer contribution and penalty, which means the calculations could be more complicated, and the penalty more costly, than this illustration.