Health care and the September Jobs Report

The unemployment rate declined by 0.3 percentage point to 7.8 percent in September. Although employment rose and the unemployment rate fell, the main reason for the rise in employment was an increase in part time jobs.

How does healthcare relate to the changes in employment in the September jobs report?

Let’s think about this question, why would a firm hire a part-time worker?  On reason could be that they have seasonal demand.  Another could be that employees (such as parents with children) prefer part-time work.

Generally, however, full-time employees are more cost effective for employers than part-time workers.  Hiring a full-time worker rather than two part time workers means you don’t have to have 2 trainings, firm-specific human capital can accumulate faster in an employee who is working twice as much, and coordination or tasks across employees is likely easier.

There is one significant reason why part-time workers are attractive to firms: firms do not have to cover benefits for these individuals.  Annual premiums for employer-sponsored family health coverage reached $15,745 in 2012.  Workers on average pay $4,316 toward the cost of their coverage, but employers still must bear more than $10,000 in benefit cost for full-time employees, not counting any other benefits (e.g., retirement, workers comp).

This problem is going away as long as health insurance is tied to employment.  As the price of health insurance rises, employing full-time workers becomes increasingly burdensome unless employees continue picking up a larger and larger share of benefits.

To see a not-so-rosy future, consider the employment picture in Spain.  Youth unemployment in Spain this year is over 50 percent.  Why is the unemployment rate so high?  Because employers cannot pay full-time, young workers lower wages.  In the case of Spain, the reason is union contracts.

“Much of the volatility in the labor market is the result of friction between the well-protected contracts negotiated in by the unions in the past, and the system of precarious temporary contracts that has proliferated in their wake….In the late 1970s and early 80s, in the heady days of Spain’s transition to democracy, the country’s parties made a concerted effort to show their affinity for the working classes; in practice, this meant accommodating unwieldy union demands. Job protection was paramount, explained Professor Sara Watson, a political scientist specializing in Spanish and Portuguese labor at Ohio State University. When a recession hit in the 1980s, one of the few ways the government could combat unemployment without cutting into existing labor prerogatives was to create temporary contracts. These were designed to make it easier for businesses to hire young people (as well as immigrants). But since it paid out fewer benefits, it also made it cheaper for businesses to shed these workers when the going got tough.”

In the U.S., a similar two-tiered system may be developing.  Older, high-skilled workers will receive full time jobs with extensive benefits.  Younger, less-skilled workers will be increasingly relegated to part-time work.  Low-skilled workers under Obamacare face a steep choice; although they earn little income, they have to buy health insurance under the individual mandate.  Since the penalties for not buying health insurance are small, however, workers may forgo buying insurance in the health exchanges.

This future pay be averted.  In the U.S., employers can shift a larger share of health insurance costs to employees.  However, low-skilled (and especially healthy) workers may prefer not to have health insurance and receive their labor compensation in the form of wages.

Regardless, increasing health care costs will affect the employment picture in the future.

Resources

To find out how the jobs report numbers are calculated, see this article.