Firms are awash with cash, but they're not hiring. What's going on? One place to look for an explanation is the policies of the Obama administration.
President Obama's proposal to increase the minimum wage and the health insurance employer mandate are combining to destroy job opportunities for young, unskilled workers in cities and towns across the country.
The minimum wage, currently set at $7.25 an hour, will jump to $9 an hour and be indexed going forward if the president gets his way. The Affordable Care Act (ObamaCare) is already the law of the land and its effects are being felt right now, even though the employer mandate doesn't go into effect until next January.
With respect to the new health law, the Congressional Budget Office estimates the cost of the minimum benefit package that everyone will be required to have will be $4,750 for individuals and $12,250 for families. That translates into a minimum health benefit of $2.28 an hour for full time single workers and about $3 an hour for someone working 30 hours a week. For family coverage, the cost is $5.89 an hour for a 40-hour-a week employee and $7.85 an hour for a 30-hour-a-week employee.
These are not small changes. They can double the cost of labor in some cases.
The law does not specify how much of the premium must be paid by the employer versus the employee. But there is a government requirement that the employee's share cannot exceed 9.5% of wages for low- and moderate-income workers and an industry rule of thumb that employers must pick up at least 50% of the tab. The economic effects are the same, however, regardless of who writes the checks.
Employers have four ways to reduce this burden: (1) the mandate doesn't apply to firms with fewer than 50 workers, (2) the mandate doesn't apply to employees who work fewer than 30 hours, (3) the employer doesn't have to offer or subsidize family coverage and (4) rather than provide health insurance, the employer can pay a $2,000 per (full-time) worker fine.
There are going to be lots of firms that fail to grow beyond 49 employees. But be warned: If an individual owns, say, two or three fast food franchises, the IRS has signaled that it will treat their combined operations as a single business. Also, in calculating the number of full time workers, the IRS is going to count "full-time equivalents." That means that two workers, each working 15 hours a week, will count as the equivalent of one full-time (30 hour) worker.