Setting the Stage: Save American Workers from ObamaCare

By: Patrick Hedger-Policy Director, American Encore

The House of Representatives is set to vote this week on a version of the Save American Workers Act. This is a strong piece of legislation that will protect countless American jobs. It ought to be swiftly passed by the new GOP-controlled Senate and signed into law by President Obama. Here's why:

The Patient Protection and Affordable Care Act, better known as ObamaCare, has already begun to radically reshape the labor market. A recent report from Investor’s Business Daily showed that at least 450 different employers all across the country have begun either reducing the number of hours employees are allowed to work each week, reducing the number of employees entirely, or both.  Of course 450 is only the total amount of documented cases of reduced hours and layoffs. The actual extent of the situation is unquestionably much larger. This is the antithesis of what the economy needs right now. The complex web of taxes and incentives that is ObamaCare is entirely to blame. 

The two key provisions at play here, dramatically exacerbating the crisis of the weak labor market, are the employer mandate and the 30-hour workweek. That’s not a typo; under ObamaCare the virtually universal definition of a fulltime job being 40 hours a week has been rewritten to 30 hours a week. Hold off on congratulating millions of part-time workers on their government-dictated promotion to fulltime staff, the bad news is most all of them about to become part-time workers again, much to their detriment. 

The reason that the government redefined the standard 40-hour workweek to 30 hours was to saddle employers with even more responsibility to finance insurance coverage in the United States than they already do. In 2011, 55.1 percent of all Americans had health insurance sponsored by their employer or a loved one’s. Employers provide health insurance as a way to both compete for the best talent available in the labor market and to increase compensation to their employee’s without having to pay additional taxes and therefore increasing the maximum benefit to the given employee. Liberals often complain that wages have “stagnated” in the United States since the 1970s. However this argument fails to take into account several benign reasons for the observed stagnation including the enormous rise in benefits. Benefits like health insurance now comprise an average of over 30 percent of total employee compensation. 

ObamaCare mandates that all businesses with 50 or more fulltime employees begin providing health insurance coverage to those employees. The coverage has to meet a strict set of criteria set out by regulations under the law, which can push costs higher for the employer. Failure to provide such coverage results in a $2,000 fine, per employee, per month. 

Since ObamaCare also redefines who qualifies as a fulltime employee by reducing the threshold from 40 hours a week to 30, and given that health insurance benefits have been increasingly used as a method of employee compensation, the law is for all intents and purposes imposing a massive wage hike on employers across the country.  Of course, as any economist will tell you, increasing the price of something will suppress demand for it. 

Faced with essentially having to hike pay for formerly part-time employees or face stiff fines from the government, employers are increasingly choosing a third option: eliminating those employees or reducing their hours to 29 per week. This disproportionately impacts those already struggling the most. People in part time work are generally either low-skilled workers, who are trying to gain experience and climb the economic ladder, or people looking for supplemental income for their household, such as homemakers and students. Regardless of the intent, the economic reality of ObamaCare is that it demands that these people forgo the opportunity to work and earn another 10 hours per week of income so that the government can mandate that employers provide comprehensive coverage to their fulltime employees, which they largely already do. Extrapolate 10 hours per week out and that amounts to 3 months of work a year –and that’s for those lucky enough not to lose their jobs entirely. 

In the long term, ObamaCare must ultimately be replaced. In the near term, the hours and jobs cuts that have already occurred must be reversed and those looming must be stopped. The employment situation in the nation is still far too fragile to do anything otherwise. A simple solution is the Save American Workers Act. This proposed law, already passed by the Republican controlled House of Representatives in the previous Congress, simply changes the definition of a fulltime worker, for the purposes of enforcing the rest of the Affordable Care Act, back to 40 hours a week. This is an obvious fix to ObamaCare that enjoys bipartisan support. 

By forcing employers to choose between and exorbitant increase in their labor costs versus reducing hours and employment, no benefit will result, especially with respect to the labor market. The Save American Workers Act will eliminate this damned-if-you-do-damned-if-you-don’t scenario by allowing employers to continue offering part-time employment in excess of 30 hours a week without the added cost and pressure of ObamaCare’s demands. The labor market and those supplying the labor in it also benefit. The part-time labor force will benefit from increased opportunity to earn extra income and gain the necessary skills and experience required to move up the economic ladder.

“Setting the Stage” is a blog series produced by American Encore in order to highlight beneficial legislation and policies that will help pave a prosperous path forward for all Americans. American Encore is an organization dedicated to defending freedom, promoting free markets, working to expand economic opportunity and making the case for the American ideals of liberty and democracy, both at home and abroad.