The Grim Reaper is on the march once again. President Obama routinely kills private sector jobs as he pursues socialism through whatever channel is available. And Obamacare is an invaluable channel for him to vent his wrath on laissez-fairecapitalism across the United States.
From January 1, 2014, Obamacare requires firms with 50 or more ‘full-time-equivalent workers to offer health plans to employees who work more than 30 hours a week. Employers who cross the 50 employee threshold and fail to offer health insurance confront a $2,000 annual penalty for each uncovered worker beyond 30 employees.So, by hiring the 50th worker, the firm pays a penalty on the previous 19 workers as well.
As is too frequently the case when socialists legislate to control the private sector, enormously high perverse incentives are created. Thousands of small businesses will confront a $40,000 tax penalty should they expand and hire a 50th worker. A simple example illustrates the magnitude of the disincentive to expand.
Suppose that a firm with 49 employees hires a new worker for $12 per hour for 29 hours per week.There is no Obamacare health insurance requirement. Now suppose that that worker moves to 30 hours per week, becoming ‘full-time, under the Act. This triggers the full penalty. So, in order to obtain 52 hours of extra work from that worker, the extra cost rises from $12 per hour to %52 per hour. In terms of rational choice, what would you expect profit-seeking firms to do?
Well the answer is already there for all to see. Although Obamacare starts in 2014, the measurement period utilized by the Feds to determine a firm’s average number of full-time employees, began on January 1, 2013. And here is what is happening, most especially among fast-food restaurants that typically register annual profits of only between $50,000 to $100,000.
In a growing number of McDonalds and Burger King outlets, each such outlet hires employees to operate the cash register or to flip burgers for 20 hours per week. Those worker then head to the other outlet for another 20 hours per week. This exchange of employees avoids the Obamacare health insurance/tax. Many other such outlets are now known as the 49’ers because they cap their employees at 49. Businesses that hire young less-skilled workers put a ceiling on the work-week below 30 hours. These firms are known as the 29’ers.
Among the fast food franchises that now engage in such rational behavior are: McDonalds, Burger King, Red Lobster, KFC, Dunkin’ Donuts, Taco-Bell, Red Lobster and Olive Gardens. And they are just the trail-blazers among the small business sector.
Note that once one outlet adopts such a policy, others are compelled to follow or to run a high risk of liquidation. Margins are narrow in the fast food industry and outlet liquidation is always high.
Give Barack Obama credit. He really knows how to destroy capitalism. Lenin did it through inflation. Obama does it through his signature health program.
Hat Tip: ‘Obamacare and the 29ers’, The Wall Street Journal, February 23, 2013