Thursday, July 2, 2009

Who Pays for Employer Mandates?

The Obama Administration is planning to load many new very expensive mandates on businesses that have employees (if you don't have any employees, you are exempt from all of this nonsense). Does this mean that employers pay for this?

In the very short run when first implemented, employers pay and reduce their work force accordingly. So, at first, there will be new unemployed (plus workers that would have been hired that are never hired...but no one counts these up). And, employers pay.

But, what happens over time? Does a company care how their costs per employee are distributed between wages, health care, social security tax, unemployment tax, paid sick days, insurance for potential litigation, etc. No. The only thing that employers care about is the total dollar cost per employee. Long run, the market sets this cost and the cost is independent of the mandates that the government imposes.

Put another way, if employers are required to pick up health care costs for their employers, they will simply pay lower wages to those employees in the long run. That doesn't happen immediately. The immediate effect is they hire less people. But, over time, as they hire new people, employers will factor all of these new costs into the picture and offer a significantly lower wage to future employees. This means that the burden of all of these mandates eventually shifts to the employees.

What the government is really doing is taking away the right of an employee to decide how to spend his income. Employer mandates are a way to mandate that employees must: 1) buy health insurance; 2) take paid sick days; 3) pay for their own unemployment insurance; 4) pay social security tax, etc., etc.

You often hear that employee take home pay has fallen over the past few decades. Yes, that is true. Employer mandates (plus Congressionally inspired litigation) are the main culprits.

Under Obama, over time, employee discretionary take home pay will stagnate or fall because of these mandates. That assumes the employee has a job. Under Obama plans, having a job may prove to be a difficult thing to do.