Posted on 10/15/2010 5:23:00 PM PDT by jfd1776
The easiest way to discuss the inherent flaw in raising the minimum wage is to consider the hamburger shop that can afford to pay $30 in salary, total, for one hour of operation. At $5 per hour, the owner can hire six employees. If he must pay $6/hour, he can only employ five, and make them work faster. If he is forced to pay $10/hour, he must seriously overwork just three employees. Eventually, service will suffer, and the shop will go out of business, putting them all out of work.
We cannot know, from the outside, how many employees are right for that business, so we cannot mandate how many the owner employs. The owner knows his staffing needs, and must therefore be free to set his pay scale and his employee count in a manner that keeps his business profitable enough to be worth keeping open. The more flexibility he has in offering salary and benefits, the better chance he has of success. Government-mandated wages and benefits, however well-intentioned, have one clear eventual effect: driving employers out of business; putting people out of work.
Yes, this is a generality – the bearable levels of government mandates will vary from business to business, from jurisdiction to jurisdiction. But whatever the shop and wherever its locale, it may be able to cut other things for awhile to survive this hit or that one, but eventually the hits are too hard to take, and the employer must buckle, either leaving for a more affordable jurisdiction or going out of business entirely.
Many politicians and pundits understand this tradeoff – that every mandated benefit carries with it a proportionate cost in employment – and so are able to resist the pressure to raise the minimum wage as frequently as the labor activists desire.
But even these politicians will sometimes fail to see how this same clear argument applies to other mandated costs… sometimes just enough of them to pass a truly destructive piece of legislation, as in the case of Obamacare.
Through 2009 and early 2010, the Left capitalized on their domination of Congress and the White House by ramming through their takeover of the American healthcare system. The Right fought tooth and nail, but honest politicians in a minority position are at a distinct disadvantage when confronting a corrupt majority bound to tolerate neither common sense nor basic economics in their policy deliberations. If not even their personal oaths to uphold the Constitution will bind them, what prayer do we have of convincing them with reason?
So it was passed. And all the dire predictions of the Right are coming true, exactly as expected.
As in our minimum wage example, we are forcing the business community to absorb an employee benefit that they can neither afford today nor even predict for the future. Painfully accustomed to five to ten percent annual increases in health insurance costs already, businesses are now seeing double and triple those earlier rates of increase, as increases of twenty to twenty-five percent are now commonplace for 2011.
Forced to pay more per employee, businesses must choose between absorbing this hit and letting other expenditures go – cutting down on R&D, business expansion, perks, raises, new hires, dividends, pension or 401K contributions. This is one of the major reasons the economy still hasn’t recovered.
We won’t even see these reductions; they won’t make the evening news. Unless required by the SEC in investor guidance, companies don’t announce these things, or announce what the background is. They may not even be conscious of them. When a company has a million dollars in profit, it can choose how to allocate it; when the company doesn’t have that million, because the government has allocated it for them, there is no decision to make.
In the months after the corrupt late-night passage of this criminal intrusion into the marketplace, we saw a flurry of investor guidance notices, as public companies announced needed charges to address the new costs: a hundred million here, five hundred million there, even a couple in the billion dollar neighborhood. But now that flurry has faded from the public consciousness (though perhaps not for the employees, pensioners, and stockholders of those firms), and the general public needed a reminder in time for the November election. Tens of millions of voters are getting it now, in the form of the new insurance rates in their annual “open enrollment” packets.
So let's look at it from the insurance company's point of view. Just as you can’t make an employer raise his employees’ salary without giving way elsewhere, you can’t make an insurance company offer something for free without paying for it in premiums. Think of what Obamacare means to the cost structure of the insurance companies.
This alleged health “reform” requires that the insurance company must remove member copays for annual checkups, so those copays are moved into the premium. Obamacare requires that the program must provide more free preventative care than before; the cost of these appointments too must now be built into the premium. Obamacare requires that the insurance programs must cover children up to age 26, when they should be working on their own, paying for their own insurance policy; watch the price of family plans skyrocket.
The Left would have us believe that none of these benefits existed before the passage of Obamacare, that the Troika of Obama, Pelosi, and Reid invented them all this year, as the generous blessings of a political class committed to the betterment of mankind... but as in so much else, they lie. All these were options before, to be selected by those to whom they were of value, harmlessly dismissed by those to whom they were not.
In the past, if a parent wanted to cover his children up to age 26, he had plenty of plans to choose from that would do so, at a higher cost. If a policyholder had no need for such a program, he chose one without it, and saved the money.
If a person wanted a couple of preventative care visits per year, he could choose from a plethora of plans offering them. But if he wouldn’t use them, he could pick a policy without them and save some money.
And there has always been plenty of variety in the desired balance of cost percentages and copays. The shopper or employer evaluating the plans could choose between low copays and high premiums, higher copays and lower premiums, more or less coverage in general. Health insurance in America was all about choice. It may have been expensive – the best healthcare on earth could hardly come cheap – but it was effective. Some tweaking was needed – even more so now! – but the choice aspect was one of the American system’s greatest advantages.
Until now.
With choice removed – with the switch to a largely cookie-cutter approach in which the government decrees which services are covered, how many visits shall be free, whether or not there can be a copay, which prescriptions may be allowed – the price will climb, putting individual and employer alike in a dual spiral of ever-increasing prices and ever-plummeting quality of care. When you have to give everyone the exact same thing, fewer and fewer will get exactly what they need.
With many bad bills or hard choices in government, one can say “at least there’s a good side.” Someone gets hired (even though in too costly a manner); some benefit is provided (even though the private sector could have provided it better). It’s very difficult to see any good side in this one, however. The result has outstripped the expectations of its opponents; it can never even approach the promises of its champions. The predictions of the Right have come to tragic fruition faster than most dreamed.
Return for a moment to our hamburger shop. In addition to paying three, five, or six salaries out of that $30 hourly pool, the owner must find a way to offer an expensive benefit, the cost of which rises annually and unpredictably with no ceiling in sight. How long before the owner gets out of the hamburger business entirely, closes down his shop and sets his employees free to look elsewhere for employment? And how long before the insurer, suffering the same plight, gives up on the unsustainability of the new healthcare model in America, and switches to other financial or insurance products for good?
When you force a hamburger shop to provide the products and amenities of an expensive steakhouse, there are only two choices: it either must become an expensive steakhouse, or it must go out of business. And for the government of a diverse economy to force a nation of 300 million into that same tiny mold is an outrage.
No, there is no good side to this bill. About the closest to a positive is the fact that Obamacare has done so much damage, so fast, that the news is universally obvious before the election, so that, for once, people can respond appropriately at the polls, possibly in time to repeal and replace it.
For millions of us this year, November can’t come fast enough.
Copyright 2010 John F. Di Leo
John F. Di Leo is a Chicago-based Customs broker and international trade compliance expert. A former county chairman of the Milwaukee GOP, he has been a recovering politician for over thirteen years.
Permission is hereby granted to forward freely, provided the byline and IR URL are included. Follow me on Facebook or LinkedIn!
Minimum wage laws are evil and counter productive.
Our health insurance premium went up 22% this year. We had to continue last years plan with no changes to keep the increase this low.
No, his reasoning is sound.
Consumers will not pay 10 bucks for a 3 dollar hamburger.
He might as well raise the price to a million bucks on the principle that he only has to sell one to make it.
Price is limited by demand.
Why the big deal when wages go up? There isn’t that much of a clamor when costs go up (supplies, utilities, etc.). The business decides whether to absorb the costs and/or raise prices. Every place I’ve ever worked, people at the top got a raise every time the hourly people did. If the raises cost the company so much, why’d they give raises to the top brass (and those raises were a WHOLE lot more - dollar-wise - than the hourly).
They will reduce the work force at first and then later raise prices. It has happened time and again.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.