What happens when a minimum wage hike is coupled with Obamacare employee costs?

21 Feb

The Congressional Budget Office weighed in on President Obama’s proposed $10.10-an-hour minimum wage, saying it could lead to job losses that range from “very slight” to “1 million.”

But in a footnote, the nonpartisan number cruncher explained that near-term job loss may be higher because its analysis didn’t factor in the new ObamaCare costs imposed on employers.

“At the same time that the proposed increases in the minimum wage would take effect, the Affordable Care Act’s requirement that many employers provide health insurance (or pay a penalty if they do not) will impose an additional cost on employers for some low-wage workers who do not currently have employment-based health insurance,” the CBO said.

Over time, the CBO expects that the cost of complying with ObamaCare’s employer mandate “will ultimately be borne by (low-wage) workers through lower wages.”

But in the near term, ObamaCare’s extra cost “boosts the likelihood that employers’ savings from reducing the size of their workforces would exceed their adjustment costs,” such as installing labor-saving equipment, the budget agency said.

Analysts on the left lashed out at the CBO for its analysis that “flies in the face of overwhelming empirical evidence,” according to Christine Owens of the National Employment Law Project.

Yet there has been little study of minimum-wage hikes of the scale proposed (39% from the current $7.25 an hour).

In analyzing a smaller increase to $9 an hour, the CBO projected little job impact, from a slight gain to as many as 200,000 jobs lost.

Proponents of a large minimum-wage hike also have ignored its potential interaction with ObamaCare’s employer mandate, which the CBO suggested may result in a bigger near-term job loss than a wage hike by itself.

Firms that do offer coverage, even of the skimpy variety, would face a fine of $3,000 per full-time worker who receives exchange subsidies.

This penalty is nondeductible, so for profitable retailers facing a 39.2% federal and state tax rate the fine would equate to $4,930 in wages. That comes to $2.37 an hour for a 40-hour-per-week, year-round worker.

Coming on top of a federal minimum-wage hike of $2.85 an hour, ObamaCare fines could mean a 70% increase in compensation costs for a low-wage worker.

With a $10.10 hourly minimum wage, full-timers would earn 175% of the individual poverty level in 2016, making many eligible for exchange tax credits (and exposing their employers to potential fines). Whether workers in larger households would be eligible for Medicaid coverage (which doesn’t carry a fine) would depend on family size and other income.

In its recent budget outlook, the CBO noted that ObamaCare’s mandate “will initially reduce employers’ demand for labor and thereby tend to lower employment.

“Some employers will respond to the penalty by hiring fewer people at or just above the minimum wage — an effect that would be similar to the impact of raising the minimum wage for those companies’ employees.”

Yet the employer mandate is quite different than a minimum-wage hike because it is to a large extent voluntary: Companies can avoid it by cutting workers to just below 30 hours per week, ObamaCare’s full-time threshold.

The CBO said its latest analysis did not try to gauge the potential impact of a minimum-wage hike on the workweek. Previously the agency said it did not detect any impact from ObamaCare on part-time employment.

Yet looking at economy-wide data misses ObamaCare’s apparent impact on low-wage workers. IBD’s analysis of Bureau of Labor Statistics data reveals that the low-wage workweek has sunk to an all-time low among the 30 million workers in private industries where pay averages up to about $14.50 an hour.

The combination of a big minimum-wage hike and ObamaCare’s mandate is likely to result in more low-wage workers losing work hours and income. While much or all of that income might be replaced by a higher wage, with some coming out better off, ObamaCare’s employer mandate would complicate the goal of reducing inequality by lifting up low-wage workers.

 

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