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« Uh Oh, Utah | Main | A Little Rhetoric »


mike shupp

Let's do the math...

Assume an employer has A functionally equivalent employees. They work equally hard, are generally productive, all that good stuff. They normally work 40 hours per week, at a cost of R per hour. At the moment they each work N hours of overtime, at 1.5R per hour. And each gets health insurance at a cost C. Ballpark for middle aged single workers, C is about 5000 bucks per annum, or 100 dollars a week.

The employer considers hiring k additional workers, to eliminate the overtime. This makes sense iff

A(40R + 1.5NR + C) > (A+k)(40R + C)

which reduces to 1.5ANR > 40kR + kC

Now we assume the total amount of work does not change so AN = 40k

Substitute and reduce to get 20R > C.

With C at 100 bucks/week, this makes sense if the regular pay rate R > $5 an hour. This is generally the case, so I conclude most employers don't want to pay extra insurance for extra workers.

(more to come)

mike shupp

But let's not forget the employer has another option, which is to hire part time workers who needn't get any insurance at all. This harks back to an earlier post by you wondering at the number of people with second or even third jobs. Generally these folks are not working 2 or 3 full time jobs -- I've done it, and I'll testify the routine gets very old very quickly!

So the riddle isn't Why does the employer hire part time workers? We know the answer to that. The question is, Why hire workers who already have full time jobs?

And I think the answer is a sad one. What can you assume about a prospective employee who has a full time job already? He's ambitious, or at least willing to work for the money (your money!). He's industrious or diligent or otherwise productive at his present employer. He gets along with other employees and managers at his current job. He's got a batch of virtues, all of which are proven by his continuing to hold down that job.

And what can you assume about an applicant who doesn't have a job already? Some certain bad things -- such as he'll likely quit if a better paying job (possibly one with health insurance) comes along. And a batch of maybe bad things -- he could be a drunk, or a drug addict, or a thief, or lazy, or too stupid to work effectively, or a bad-tempered disruptive worker. Why else is he out of work, after all? (And no, you can't call his old employer and ask for the lowdown these days. That opens up all sorts of legal hassles unless you can document your excuse for firing the guy in a court.)

So we haven't actually gotten to the point that all laid off employees are the sort of Zero Productivity Workers that Tyler Cowen occasionally blogs about. But there are enough of them, whether actually or in the minds of employers, that people who make hiring decisions are reluctant to hire the unemployed, especially long-term unemployed.

This does not bode well for the future.

Dave Tufte

Paraphrasing: "I was told there would be not math on this blog."

I think your value of C=$100/wk. is exceptionally conservative. So, then, your results of R=5 is too low. But, with more realistic figures, I still think you'd get R=8 for a single person, and R=16 for someone supporting a family.

But, of course, only an accountant would spread the fixed cost of insurance over the average work week. (That's a slam at accountants, not at you, Mike).

If we're going to get all arithmeticky with this, the right thing to do is treat the healthcare costs as a fixed cost. Then envision the employer regarding a "job" for a "worker" as an enterprise with a shutdown rule. What the cost of healthcare does is make the wedge between breaking even and shutting down a lot wider. This means that with higher healthcare costs, an employer is far more likely to retain the worker even though they may be losing money on them. The thing is, this fixed cost can be completely avoided by voiding out this little one employee enterprise.

This leads to the perverse result that if the government really didn't want employers to cut people over healthcare, then they should require the employer to pay it whether or not the employee is working. This will make it much more like a true firm-wide fixed cost.

But ... if they did that ... everyone would immediately recognize that our system of the government mandating our healthcare expenses at the firm level is just like requiring them to pay a huge up-front tax for the right to be in business in the first place.

That sounds like something a banana republic would do. And the self-image of our government is that we're not a banana republic. So it's really important for them to not expose the arithmetic that might make them look like what they really are.

Dave Tufte

I think your second comment is right on the money.

I reposted this from my class blog; and in class we've been talking a lot about how the labor market figures are telling us this disturbing story. And really, this story has just been getting stronger for over 3 years: the job market is OK for people who can hold a job. The rest have been weeded out, and for good reasons.

That actually really calls for a New Deal sort of jobs program. You know, take the people who are sending out the wrong signals, and push them into a make work job where they might see the benefit of sending the right signals.

And no ... this does not bode well for the future.

mike shupp

The rest have been weeded out, and for NO good reasons. I.e., there may be people sending out "wrong signals" (having a criminal conviction or two, for instance), but by and large what long term unemployed people have to reveal is long term unemployment. The people making hiring decisions simply ignore other characteristics when rejecting them. Any sort of government retraining program would just add to the stigma.

Conceivably we'll eventually have a boom that persuades employers to add millions of workers despite their apparant disabilities. I'm not holding my breath waiting on this. Alternatively, in a couple of decades we might have a European-style demographic collapse, in which there are so few potential employees that employers hire all of them. Or maybe state governments will decree that that all married women must be housewives to leave the jobs to men. Or we'll deport all our hispanics and Orientals. Or we'll encourage a couple million people per year to emigrate from the US to Europe and Africa. Or we can build Brazilian-style favelas and encourage the neglected poor to shrivel up and die. I dont forsee any easy answers.

OTOH, maybe we're in for a good long stretch in which conservatives demonize the unemployed enough that the latter all become liberal democrats and push for single-payer health care, food stamps for all, government-subsidized football tournaments, and lots more public housing. There's a prospect for Republicans to embrace!

Dave Tufte

I'll get to the "NO good reasons" point in a moment.

First, there is some evidence that there were good reasons even before the Great Recession. In particular, the divergence between employment reported by firms and by households earlier in the decade was consistent with many people not being able to find jobs in the traditional sense: as a payed employee of a viable concern.

Second, there is some evidence that there were good reasons during and after the Great Recession. The industries where workers are having the most trouble getting back into jobs (e.g. construction, state and local government) are the ones most likely to sop up workers with characteristics that wouldn't endear them to more typical employers.

Having said those, let's return to the "NO good reasons". If it isn't the fault of individual workers' characteristics, then it must be the fault of characteristics that are appended to them.

One could be the duration of their unemployment. Of course, the government encouraged that with longer terms for unemployment benefits.

Another could be healthcare coverage. Of course, the government encouraged that to.

Both of those suggest that the government caused the sluggish employment sector faced by some ... on purpose.

It is very cynical, but not beyond the realm of possibility, to envision 1) creating a new under class on purpose, because 2) you're quite sure that the opposition will solidify their loyalty to you, by demonization.

mike shupp

MY cynical take -- I see this as a possibility, not a certainty -- is that people in the White House view ObamaCare as expensive and unwieldy and generally something businessmen will all hate, but persevere because (a) it's the only health care expansion poltically possible with the current breed of Republican opposition, and (b) the only plausible alternative, which will be forced upon us by screaming employers is some form of single payer.

Maybe this is a variety of idealism...


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