By John Manning – john.manning@internationalbanker.com
Obamacare is no doubt changing the economic landscape and the changes we see could be a mutated repeat of history. Conservative critics speak constantly of how the law of mandated insurance will kill job growth. Liberals insist it won’t happen. In our current economic recovery, job growth is quite abundant, but wage and wealth growth have been largely nonexistent.
About 95 percent of the wealth generated in the recovery went to the top one percent and more than half the job growth has been in the lowest-wage category. Obamacare might be the accidental catalyst that changes this dynamic. It may cost businesses more money but, more than likely, the costs will come from wage hikes, not insurance costs. To understand why the pending changes in company-sponsored insurance plans initiated by private sector giants has to be considered. So does the history of government-supported insurance.
United Parcel Service will disqualify spouses of employees if those spouses have available healthcare options at their own jobs. On the surface, this doesn’t sound like an issue, since some companies already do a softer form of this to discourage family coverage.
Many companies, such as food giant Nestle, ask employees to state if their spouse has available coverage options elsewhere. If the employee’s spouse does, then they must pay an extra premium to insure their spouse through Nestles plan. That option may still be better than paying for inferior coverage from another source, and the whole family can still get coverage from one provider, which can spare a lot of headaches.
UPS employees don’t have the spousal fee option. If the spouse can get coverage elsewhere, they must, no matter how inferior or more expensive such coverage may be. UPS has historically been famous for offering high-quality health benefits, even for part-time workers. The company already faced humiliating failure to deliver Christmas packages on time. Their profits could slide further as talented employees who move millions of packages per day decide to start looking elsewhere for work if they lose the advantages that the prior benefits provided.
Medical insurance has proved to be a magnet for good employees who deliver quality work and contribute to the high productivity rates of many US companies. Like UPS, coffee giant Starbucks is also well-known for its history of offering full health insurance to part-timers. An employee at Starbucks need only work 20 hours per week to qualify for full health insurance and the employee’s spouse can also be covered under the plan.
Starbucks is renowned for consistently-good service to its customers. A common joke is that cranky people get annoyed by the consistently-perky baristas that smile hour after hour no matter how busy they get. One key reason those baristas are smiling surely has to be that they don’t worry about health insurance.
Starbucks has been quiet about the Obamacare issue since August when Howard Schultz said his company had no plans to scale back benefits for employees. But many other companies are cutting back. One of the latest is Target, which will nix benefits for part-time employees, anyone who works less than 30 hours a week will no longer be able to get insurance. The announcement was made by the nation’s second-largest retailer at the end of January. Trader Joes and Home Depot have also announced plans to scale back benefits.
The cutting of these benefits will not only make it tougher for those companies to keep employees, which could mean lower profits and the shrinking of the labor force. Big box retailers like Target typically pay employees too little for them to purchase insurance on their own. It is only through the elimination of insurance, that many such employees received, that we will find out just how many people are currently “working for the insurance” as many a Starbucks barista have openly told their own customers.
On the extreme side, insurance subsidies for many who couldn’t previously afford it may indeed tilt the nation back to the notorious welfare state it was in the 1980’s. Millions who received federal welfare subsidies also received their healthcare through government programs.
Conspiracy theorists never tested the idea that President Bill Clinton had already planned to support the successful welfare reform crafted by Newt Gingrich’s conservative congress because the popular president planned on Hillarycare succeeding in covering the masses who left the welfare rolls to work in the low-paying retail and service sector jobs. Of course, Hillarycare was killed by congress in the fall of 1994 just before the Republican sweep of that year’s election. Welfare reform wasn’t finalized until 1996, but it was a reflection of the resentment many average Americans had toward welfare since the early 1980’s.
Yet, in the 1980’s, when the traditional welfare state was at its peak, wages for workers were higher in relative terms. It was not nearly as difficult for middle class families to remain middle class, and while the idea of job security was, by then waning, job turnover wasn’t nearly as high as it is today. Layoffs were something people preferred not to talk about, as opposed to being a household word today. The welfare state kept the labor pool smaller and therefore bolstered wages.
Some will says “things were different” in the 1980’s. In the early 80’s, unemployment was above ten percent, close to rates of the Great Recession of late. What was different was that entire industries collapsed, steel and autos were on the brink of death and the US was way behind on technology production compared to Asia, and yet, the economy recovered with a vengeance. Unlike the current economic recovery, the economy of the late 1980’s, the peak of the US welfare state gained back everything it lost.
The rebound in the 1980’s was quite fundamentally sound in the long run, especially when one considers that the American steel industry was, by the late 1990’s, a very powerful global contender with pricing power. US automakers bounced back and today, continue to chip away at foreigners’ market share. Their product quality and productivity rates are reaching par with foreign firms once considered clearly superior. What wasn’t different about the 1980’s was that illegal immigration, as well as plentiful legal immigration, supplied the economy with plenty of cheap labor, even as some were taking welfare checks like their American-born counterparts.
In the current economy, medical subsidies may remove workers from the labor pool who have historically “worked for the insurance”. This could shrink the labor pool once more and change the dynamics to force wages higher, which could cost corporations much more than they might spend to insure lower-wage workers.