Garett Jones  

ACA: turning full-time jobs into part-time jobs

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Hanson on "Bankrupt California... Josh Barro, Progressive Taxati...
At least at some Red Lobsters:

The owner of Olive Garden and Red Lobster restaurants is putting more workers on part-time status in a test aimed at limiting the impact of looming health coverage requirements.

Mickey Kaus's Monday prediction becomes Tuesday's news.  

No surprise here, basic microeconomics.  Health coverage is complicated, especially for industries with high turnover.   And that's ignoring the financing of health insurance itself.  The U.S. food service industry traditionally relies on flexible schedules, but this makes that flexibility more difficult.

Other things equal, this is bad for dynamism, for churn, for creative destruction.  


...nothing in the Affordable Care Act penalizes....large employers for choosing to limit their offer of coverage to full-time employees...

Acasclerosis, anyone?  Say it loud: "Acka-skler-ohsis"


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CATEGORIES: Microeconomics , Regulation



COMMENTS (39 to date)
David N. Welton writes:

Here in Italy, despite the many other issues related to the stagnant, static job market, having a single-payer system is good for churn and creative destruction: even if I lose my job, I never have to worry about my kids being denied access to medical care. Granted, it's an imperfect system, Italy is really indebted, and so on, but I think by and large, it works pretty well. And as a % of GDP, it costs less than the system in the US.

Greg G writes:

This trend to replace full time employees with part time has been underway for a long time, especially in restaurants and retail. Whether or not there is an ACA, businesses want more freedom to offer different packages to essential and nonessential employees. The trend to part time also makes scheduling a lot easier for businesses.

Employees would like more benefits. Businesses would like lower benefit costs. Same as it ever was. It is high unemployment much more than ACA that is speeding this trend.

Johnny K writes:

@GregG But where does the high unemployment come from?

The PPACA isn't the only legislation that has pushed employment costs up for lower waged workers. Businesses want to lower input costs, whether they're salaries, benefits, cost of materials, whatever. When the cost of a new worker outweighs the benefits, they'll find ways around it. That's why in many of the European countries, there are strict rules about when you can reduce labor. So while yes, we're starting from high existing unemployment, the PPACA will inevitably increase it.

Greg G writes:

Johnny, high unemployment today is mostly a hangover from the financial crash and Great Recession that preceded the ACA. History shows that recovery after a financial crash takes a long time.

I don't doubt that some businesses are avoiding hiring people due to the cost of ACA but the effects cut both ways. I have two adult children who have both considered starting their own businesses in the last few years. So far one has and one is still waiting. Both tell me the biggest thing making them hesitate to take the plunge was the inability to replace their health care coverage with something of comparable quality and cost. As employees of larger corporations their employers were able to purchase health insurance at volume discounts that they could not match as startups.

mike shupp writes:

Less than full time employment, generally with less than full time wages, coupled with no health benefits. That's the ticket for ensuring employee loyalty! And excellent customer service!

If we ever pull out of this low-wage slump, I suspect Red Lobster is going to have a rapidly rising bill for wages. Which would impact thier profitability. Or are they calculating that the slump will continue indefinitely?

MG writes:

@Greg G

I sympathize with anyone who rejects the single factor explanation for anything, such as the PPACA leading to high unemployment. This issue alone is even more granular that just "high unemployment". I am more interested in the collapse and very sluggish recovery in labor market participation, jobs created in start-ups, jobs created in general.

However, I similarly reject the simple explanation...."History shows..financial crises...longer". Below is a link to a study that challenges the (RR) theory itself:

http://www.hoover.org/news/daily-report/129261

There are many more who have noted that even if the observations are broadly correct, there are many differences between the episodes studied by RR, and the "current" situation. In most cases we are letting RR become an excuse for bad performance.

I worked in EM capital markets through many of the crises RR studied, and I can recall instances where recoveries were better than what the US is experiencing. More importantly, I can not recall a single instance in which the countries' policy makers had the "benefit" of being able to take all the huge monetary and fiscal risks aimed at short-term growth that the US policy makers have had (and which may still come back to haunt us, and which would make our return on risk pathetic). With the advantages of having the world's deepest capital markets and reserve currency, we should not be able to excuse our performance by comparing it to that of the systems that make up the bulk of RR's dataset.

So I for one believe that factors other than fiscal and monetary factors must also be behind this performance, and this is where the PPACA comes in. Its enactment is an example of tightening regulatory policy (and increasing labor markets rigidity) when we should have been doing the regulatory equivalent of trillion dollar stimulus and QEn: loosening regulatory policy and labor market rigidities, perhaps even to the point critics would say it is reckless.

Methinks writes:

Mike Shupp,

The restaurant industry's workers are transitory. The employees are often students and part-timers supplementing their income from a professional job. Thus, the turnover is naturally very high. Few make a career of waiting tables at Red Lobster.

Excellent customer service is maintained because the customers pay most of your compensation in the form of tips and line cooks are extremely replaceable. This isn't high-skilled labour we're talking about. It's also a very low margin business. Raising the cost of employees even a little bit can put these businesses in the red.

Greg G,

This recovery is taking way longer than it should. It's hard to make long-term plans when the government is raising the cost of doing business and threatening to confiscate more of the profit. When you reduce the expected reward for a given level of risk, guess what happens to investment. When you raise uncertainty, guess what happens to investment.

Joe Cushing writes:

This trend has been happening for decades: it's becoming less and less affordable to hire people for 40 hour work weeks. High paying jobs are going to 60 plus hours and low paying jobs are going part time. For a high paying job, they can lower your wage 25% and pay you the time and a half for 20 hours a week. This allows them to hire 25% fewer people and reduce health care costs by 25%. For lower paying jobs, this strategy doesn't work, so they have to go part time and not have any health coverage at all. For salaried high paid or even moderately paid workers, it makes sense to just work people for as many hours as you can get them to work. Retail managers, low end salary workers, usually work a minimum of 50 hours but many work quite a bit more.

Chuck Ross writes:

I work at an Olive Garden as a server.

It will have more impact on workers who try to max out their weekly hours worked and less impact on workers whose weekly hours hover in the lower 30s. Anecdotally, I work with plenty of people who try to work as many shifts as possible because they need *cash* - not health insurance - to pay their rent and utilities. People who try to work 39 hours a week (most managers will have a stroke if employees hit Overtime)will see their average hours cut by ten. Olive Garden advertises that its servers earn twice the minimum wage, on average. This is ~$15 per hour. Assuming that servers could normally max out at 39 hours (given the anti-OT attitude), this is a loss of about $600 a month.

Thus, it hurts workers who are indicating that they need cash rather than benefits.

Specifically for Olive Garden (and perhaps the other Darden concepts), their "cutting-edge" vacation pay policy will also be impacted. Within the company they cite the fact that they provide vacation pay for employees who work more than 30 hours, on average, as reason for their relatively low turnover. With ObamaCare's arbitrary choice of the 30 hour threshold, this particular company program will effectively cease to exist.

I know someone who is also a manager at the clothing retail chain, Talbots. Over the past eight months they have enacted a policy of limiting their part-timers to 28.5 hours in anticipation of ObamaCare's mandates.

If ObamaCare remains intact (if Obama is re-elected), there will certainly be addendums to the law limiting the ability of employers to manipulate PT/FT status to meet this law. Which is just another layer of oversight lumped on top of an already confusing piece of legislation.

Ken B writes:

Acasclerosis. Now there's a new word worth barracking for ...

Greg G writes:

Corporate profits in general and Darden's in particular have been quite healthy in the last three years.

Of course Darden is blaming the government and the ACA for this policy change. What did you think they would do, simply characterize it as another in a long line of routine attempts to boost profit by squeezing employee compensation as much as possible?

It would be good if people used the same skeptical analysis for corporate publicity statements that they do for government publicity statements.

I have never known a businessman that failed to take credit for his own successes. And I have never known a businessman that failed to blame the government or the economy for his failures.

Chuck Ross writes:

Greg,

Darden offers insurance packages to full-time employees. But many of those employees don't take advantage of the insurance. When some do, the company absorbs that cost. But the cost is relatively low compared to a mandated provision of insurance for all full-time employees. This is a big shift towards huge costs.

The only limitation that Darden would have placed on hourly employees would be their working overtime. And that limitation exists because of yet another government dictate.

Other than this, Darden is cutting hours (or experimenting with it)precisely in response to a large cost shock coming down the pike through ACA.

Greg G writes:

Chuck, my point is that Darden will cut employee compensation as much as it thinks its employees will tolerate, and no more, with or without ACA. If they can do that and blame the government so much the better.

Methinks writes:

You've convinced me, Greg G.

The government can feel free to pile on the costs with no negative consequences whatsoever. Demand curves don't slop downward. Who knew?

Of course, if you read what Chuck is saying, Talbots and Darden are not cutting employee hourly wages. They (and countless other enterprises) are cutting the number of hours their employees can work in order to avoid new government-imposed costs, not in order to cut compensation from existing levels.

Now, I wonder how you're going to spin that into the "same old labour cost cutting completely unrelated to government". While you're at it, you might as well inform us how limiting hours worked to 40 or less in order to avoid government-imposed overtime pay has nothing to do with government. This ought to be good.

Chuck Ross writes:

Of course they will. So why would the government play into that tendency or think that businesses would stop adhering to that strategy?

Greg G writes:

Methinks
Despite you your suggestion that Darden is not seeking to "cut compensation from existing levels" there is this from one of the links Garett supplied:

"In the most recent fiscal quarter, the company's restaurant labor costs were 31 percent of sales. That's down from 33 percent three years ago.

The reduction was driven by several factors. Given the challenging job market, Darden has been able to offer lower pay rates to new hires. Bonuses for general managers have been reduced as sales have stagnated. Servers at Red Lobster are handling four tables at a time, instead of three.

And last year, the company also put workers on a "tip sharing" program, meaning waiters and waitresses share their tips with other employees such as busboys and bartenders. That allows Darden to pay more workers a far lower "tip credit wage" of $2.13, rather than the federal minimum wage of $7.25 an hour. "


I did not say there were no consequences from ACA and I did not say demand curves don't slope downwards. I believe Darden should be entirely free to take this action but I don't think we need to swallow this press release uncritically.

Matt C writes:

Has anybody collected a list of the ways employers will try to game the ACA? Cutting hours to duck the mandate is pretty predictable. So is seeking out deals to maximize the possible subsidies between employer and employee (where subsidies are available).

At what percent of GDP will medical care finally level off? Upwards of 20%, I'm sure. I would not be surprised to see 25% eventually. What a colossal mess.

Also, I'd like to suggest the idea that health insurance premiums now ought to be lumped in with taxes when calculating the total tax burden on citizens. With the individual mandate, health insurance is no longer reasonably considered an optional private expense.

Methinks writes:

Yah, Greg. No successful company will pay more for inputs than it absolutely has to. That's not particularly insightful or enlightening. I thought it was obvious that I was talking about the moves to cut hours in response to Obamacare since that's what I said. Companies cut costs where and when they can and labour is the largest single cost for almost every single company. Yet, nobody is seeking to cut hourly wages in response to Obamacare.

You at least twice strongly implied Obamacare was just a convenient excuse for cutting employees' hours, which they were doing in order to avoid the additional costs of Obamacare. So, how do you figure Obamacare is just a convenient excuse?

Methinks writes:

That's a great point, Matt C. After John Roberts so helpfully re-wrote the statute, I started referring to health insurance as a health care tax. Much more accurate and in keeping with SCOTUS and economic reality, don't you think?

This Obamacare debacle is going to be "fun" to watch. Several large Crony Companies have already obtained exemptions (McDonald's among them, speaking of restaurants). It's good to have connections. You're going to need them.

Greg G writes:

Methinks

Darden would love for the public (and their employees) to believe that Obamacare is the reason they have such a small percentage of full time employees.

But about 75% of their employees are ALREADY part time. I believe that causes come BEFORE effects. So yes, this is exactly what I would call "a convenient excuse." I predict they will have a lot of difficulty significantly increasing their percentage of part timers. They are already maxed out on that front.

Methinks writes:

I see your strategy here, Greg. Slithering around pretending that we're talking about something other than what we're talking about (the total number of part-timers as opposed to incremental changes in the number of part-timers ) is a much more clever strategy on blogs whose readers have much poorer reading comprehension skills, though.

Yeah, of course it's an excuse. The fact that Obamacare jacks up the cost of each employee working more than 29 hours per week has absolutely nothing to do with the desire to limit employee hours to 29 hrs/wk for as many MORE employees as the chain can. Obamacare is just a convenient excuse. Just like government is just a convenient excuse for companies to prohibit employees working more than 40 hrs/wk in order to avoid jacked-up government-mandated overtime pay.

You would have us believe that if an employee cost the employer the same amount per hour no matter how many hours he works that the employer would arbitrarily limit the number of hours the employee works for no other reason than.....what? The desire to suffer the cost and headache of managing more people?

Greg G writes:

Methinks

I do not believe we will see significant incremental increases in the percentage of part time employees at Darden.

Obamacare may very well increase their "desire" to have fewer full time employees. But that doesn't mean they will be able to fulfill that "desire." They have already done away with as many full time jobs as possible. You can't kill a corpse.

Methinks writes:

Not the point, though. Is it, Greg?

Floccina writes:

It seems to me a bad idea make laws that need to exempt part-time employees and/or small employers. If the law is really important enough then pass it for everyone. If you feel it is not important enough to risk hurting very small businesses or part-time jobs then it is not important enough to be a law.

James writes:

Greg G:

In a world where (1) ACA makes the cost of employing full time workers higher than it would be absent the ACA and (2) demand for full time employees decreases as the cost of full time employees increases, it follows as a matter of mathematics that ACA will lead employers to rely more on part time labor than they would absent ACA.

Do you deny either premise?

Greg G writes:

James

I do not deny your premise that ACA will result in fewer full time jobs in some cases. I do deny that Darden is a good example of where that will happen to any significant extent. I think Darden is just about the worst possible example of where that will happen.

I am also claiming that some additional full time jobs will be created due to the fact that it will be easier for small startups to purchase affordable health insurance.

Chuck Ross writes:

Greg,

You seem to be obfuscating on purpose. These are clearly two different issues, and it doesn't seem that Darden is using ObamaCare as an excuse to cut hours. They don't need an excuse to cut hours. They've always cut hours and they've been cutting pay. That's a completely separate news article and discussion.

Greg G writes:

Chuck

This was the headline from the article that Garett linked to:

"Prepping for Obamacare, Chain Cuts Workers' Hours"

Yes they could have cut hours without using it as an excuse. But they did use it as an excuse.

raef writes:

they did use it as an excuse.

Methinks writes:

Yeah, Greg's right. Darden just likes to have more employees working fewer hours purely to stick it to employees and to themselves. It's common knowledge among all failed businessmen that managing more people is easier and cheaper than managing fewer people.

Greg's determination to cling to fiction is amazing.

Greg G writes:

No Methinks, that is yet another transparent strawman. They like it because it's cheaper not because they put a value on sticking it to their employees for its own sake.

The loss of hours for some Darden part time employees will be bad for them but good for some other part time employees who will pick up additional hours as long as they stay below 30.

Meanwhile there will be little effect on their number of full time employees who have already mostly been reduced to the smallest number possible.

Methinks writes:

Yes, Greg, it has been obvious since you started commenting at Cafe Hayek that you specialize in transparent strawmen and obfuscations in order to cling to your love of Big Brother. You're like the cigarette smoker who clings to his tar sticks, claiming the overwhelming evidence that they cause cancer is just an empty conspiracy to deny him yet another of life's pleasures.

Greg G writes:

Methinks

I don't assume that government action is always good or always bad. I think you have to look at the specifics.

I am open to to the possibility that the ACA may cause a significant and regrettable loss of full time jobs for some firms. Darden just isn't one of them. The fact that this has not stopped Darden from becoming the poster child for ACA killing full time jobs shows just how reflexively ideological much of the opposition to the ACA is.

Methinks writes:

Yes, it's clearly reflexive ideology when firms respond to increased cost of labour by limiting employee hours to just below the level where the cost begins to rise. I mean, they could have cut employee hours any time without any excuse and limited those hours to no more than 4 per week if they're such a benefit to having more employees work fewer hours. But, that's not what happened. They are spontaneously choosing this moment in time to prohibit employees from working enough hours to trigger Obamacare and they're setting the limit at just below the Obamacare trigger purely by chance. It's just a coincidence!

It absolutely remains to be seen if raising the cost of employment will reduce employment. Those pesky demand curves can go any which way in Leftyland. And, of course, if it damages a small number of people at that margin (rather than a "significant" enough number to be "regrettable" for you so-called liberals to worry about) then it's not a problem. For you. For the student trying to pay his way through college waiting tables, it's a bit of a drag, but that's not a problem for bleeding heart liberals.

Darden from becoming the poster child for ACA killing full time jobs

While that is an adorable strawman, it is still just a strawman.

Experience dictates that you'll continue chasing your tail on this with "whuuut? raising the cost of labour above 29 hrs/wk is no reason to prohibit employees working more than 29 hrs/wk. That's just evil ideological capitalists finding an excuse to stick it to employees once again. Since everyone is finding Obamacare is increasing their costs, I'm sure my kids will find that it's going to be a huge source of cheap health insurance for their start-ups". So, I'll leave you to it.

Greg G writes:

Methinks

You really are willing to argue against just about anything but what I am saying. I agree entirely that the cost of ACA will cause them to reduce the hours of many part timers to below 30 and increase the hours of some with fewer hours up closer to thirty. I never said or thought that was a coincidence. That coincidence idea sprang fully formed from your fertile imagination.

Try to focus. My point is this: Darden's aversion to full time employees was a pre-existing condition even though they would like the public to believe it was caused by Obamacare.

Methinks writes:

You really think people can't read through the string of comments. Hilarious.

Greg G writes:

And once again Methinks decides for me what I "really think." I trust that the few readers who have followed this far will notice that I have been stating my own opinions and allowing you to state yours while you have been arguing against what I "really think" as opposed to what I have actually written.

You are playing tennis without a net.

Joe Cushing writes:

Lots of arguing here. People on the low end are just going to end up with more than one job. It would be much simpler for people to have one job and work 40 or 50 hours but they are going to end up with two part time jobs.

Methinks writes:

You're right, Joe. And it would be simpler and less expensive for the employers as well. But government is all about creating drag.

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