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EUREKA! THE SHORTER WORKWEEK IS HERE

I did not realize this until a friend told me that the Obamacare law requires businesses employing 50 or more workers to provide health-care coverage if these employees average 30 or more hours a week. (See 26 USC § 4980 H.) A fine is imposed if the employer fails to provide such coverage. This is an incentive for employers to reduce working hours in order to avoid the cost of the coverage or the cost of the fines.

The reality of this new requirement came home when a tenant in a duplex I own told me that she was looking for a second job to make ends meet. She manages a pizza delivery operation in a Minneapolis suburb. Her hours were being cut to below 30 hours per week, with a commensurate reduction in pay. To make up for the lost pay, she was looking for a part-time position with a similar business in another suburb. I understood that she would be working at least one fewer day in the week; and she would use that day to work at the second business establishment.

What to make of this? The woman was not happy about the change but was taking it in stride. The bottom-line reality was that she would not receive health-care coverage in either job and, presumably, would be earning about the same amount of money, though from two different employers.

As a long-time advocate of shorter working hours, I see a silver lining. I have long thought that the U.S. Government might amend the Fair Labor Standards Act to create a 32-hour standard workweek. This would bring weekly work time down to 32 hours from 40 or more, producing many new jobs. Now, it seems, we have a federally mandated 30-hour workweek (same as what would have happened if the Black-Connery Act of 1933 had been signed into law) under the back door of health-care reform.

The kicker is what happens to employment and wages. In this case, there would be a slight boost to employment. My tenant’s current employer would either have to operate a much tighter ship - forcing the staff working less than 30 hours a week to produce what it did before - or else the employer would have to hire someone new to plug the shortfall. In the second case. the new hiring would tend to increase employment. Of course, if the new hire was someone whose hours had been reduced to below 30 at another business establishment, the overall effect might be a wash.

With respect to wages, they tend to increase as unemployment drops. Shorter average hours reduce the labor supply (defined in worker-hours). By the law of supply and demand, the price of labor - wages - tends to increase if labor supply drops in the face of constant or rising demand. Therefore, it is not necessary to have wage and price controls. Just let the free market take care of the wage adjustments.

I fear, however, that this model may not work in an economy as open-ended as ours. If the price of labor rises, employers may find other ways to obtain the production service. First, producers or sellers of goods can obtain those goods from low-wage countries through international trade. Second, producers of goods can mechanize their production so that as much output is obtained with fewer workers. Both these forces are at work in today’s economy.

With respect to outsourcing, a remedy can be found either in trade restrictions - which is not politically feasible in a free-trade environment - or in international agreements whereby a number of nations together upgrade labor standards without disadvantaging each other with respect to cost. The second may be feasible but it has scarcely been tried.

I see no easy remedy with respect to mechanization of production. The robot revolution is at hand. The hours of human labor would have to be cut in proportion to the productivity gain to keep employment stable.

Another problem is that the Obamacare law applies only to business establishments employing more than 50 people. It also does not affect the situation where health-care coverage is already being offered. The higher-paid managerial workers would tend to have such coverage where the lower-paid production workers would not. Therefore, employment stimulus, if any, would be limited to the market for lower-echelon workers.

In order for the free market to maintain wages by the law of supply and demand, there would have to be a broader application of the reduced hours. But, again, this effect would only occur within a relatively closed economic system.

Even so, the hours requirement under Obamacare could have a major impact on the U.S. economy. It would be well to consider its possible effects with an eye to creating a more vibrant and humane economic system.

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