David R. Henderson  

The ObamaCare-Induced Shift to Part-Time Work

The Conservative Missionary Re... Russ on Progress and Signaling...

Then House of Representatives Speaker Nancy Pelosi, in pushing for the Affordable Care Act, aka ObamaCare, said, "We have to pass the bill so that you can find out what's in it." We're finding out what's in it and we're also finding out some unintended, but totally predictable, consequences. In a speech I gave in Dallas in October 2010, I said, "Look for companies that have a few more than 50 employees to cut their number of employees to the magic number of: 49." [The talk is here. Go to the 17:00 point.]

Sure enough, one consequence is an increase in contracting out to avoid the 50-person threshold. Another ominous consequence for certain segments of the labor force is a shift to part-time work or a reduction in the amount of part-time work by current part-time employees so that the part-time employees don't count as full-time. In the last week, the Wall Street Journal had two excellent stories on these.

1. Emily Maltby, "A Health Scare for Small Businesses," January 17, 2013. An excerpt:

During her two-plus years in business, Elizabeth Turley has steadily recruited new employees for her apparel company, Meesh & Mia Corp., to keep pace with its rapid growth. But this year could be different. Instead of increasing her staff, she plans to hire independent contractors for tasks that can be outsourced, such as marketing and product development.

Her reason? Meesh & Mia is on the cusp of having 50 full-time employees. If the company hits that threshold, it will have to provide health coverage that meets government standards or potentially pay a penalty.

Why adjust now rather than in 2014 when that part of the law kicks in? Continue:
Even though the rule doesn't go into effect until early 2014, a business could be subject to the so-called employer mandate if, during 2013, it averages 50 or more full-time equivalent employees, according to recently released regulations from the Treasury Department and the Internal Revenue Service.

Many small-business owners haven't yet realized that the way they structure their firm in 2013 could determine their status under the law in a year's time.

The government issued the little-noticed regulatory guidance on Dec. 28. Ms. Turley says she wasn't aware of the rules until a Journal reporter informed her.

To avoid the health-care law's penalties, many employers are considering hiring only part-time employees or deliberately curbing growth so that they have no need to hire.

2. Mark Peters and Douglas Belkin, "Health Law Pinches Colleges," January 19-20, 2013.
The Affordable Care Act requires large employers to offer a minimum level of health insurance to employees who work 30 hours a week or more starting in 2014, or face a penalty. The mandate is a particular challenge for colleges and universities, which increasingly rely on adjuncts to help keep costs down as states have scaled back funding for higher education.

A handful of schools, including Community College of Allegheny County in Pennsylvania and Youngstown State University in Ohio, have curbed the number of classes that adjuncts can teach in the current spring semester to limit the schools' exposure to the health-insurance requirement. Others are assessing whether to do so, or to begin offering health care to some adjuncts.

In Ohio, instructor Robert Balla faces a new cap on the number of hours he can teach at Stark State College. In a Dec. 6 letter, the North Canton school told him that "in order to avoid penalties under the Affordable Care Act...employees with part-time or adjunct status will not be assigned more than an average of 29 hours per week."

Mr. Balla, a 41-year-old father of two, had taught seven English composition classes last semester, split between Stark State and two other area schools. This semester, his course load at Stark State is down to one instead of two as a result of the school's new limit on hours, cutting his salary by about a total of $2,000.

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COMMENTS (7 to date)
Marcus writes:

These are interesting stories, but they are anecdotes from newspaper articles. Journalists are notorious at confirmation bias (i.e., interview someone, then don't include any of the information the interviewee shared because it didn't bolster the predetermined point of view in the article).

That's not to say I don't think part time work or hiring of independent contractors will increase, but who's to say the overall impact of those changes is bad? If the business is hiring only part time workers as a result of Obamacare rules, they presumably have the same amount of work they would have had without the rules, so more people are hired. Is there some argument or evidence that more part time work = less overall work available? I could see on a personal level that having two part time jobs would be inconvenient (vs. having 1 full time job), but is there some other negative to overall economic activity I'm missing?

Also, how many businesses are in that ~50 employee range and looking to grow? What percentage of the workforce would be impacted by this requirement? I'd like to hear more data and fewer stories.

Fralupo writes:


Generally speaking efforts to increase the number of people employed by mandating that everyone work less don't work. For example, France implemented a 35-hour work week in 2000 for similar reasons, but unemployment has moved sideways (not down) since.

Thinking this way is known as the "Lump of Labor Fallacy", which is a fallacy because one of the premises required for it to work isn't true. The problematic premise is that the total amount of work people need to do is fixed (i.e. that there is a "lump of labor" out there that needs doing). In reality the total hours worked in the economy varies all the time.

Joe Cushing writes:


Even more to your point, is that the total amount of hours worked equals the total amount of production in an economy which is the total amount of new consumption and wealth building. Forceably reducing hours worked just makes people less prosperous. This would not improve the economy. Imagine a world without trade: the more you work, the more you have. For example, on a 1880s homestead, you can keep cutting trees and build your log cabin bigger, your fenced in grazing area bigger, add chicken coups, collect more eggs, milk more cows, etc. and you will have more. Now add in trade and it is no different. You work more, you have more to trade for others work which creates a demand for them to work.

Brad D writes:

Are you saying that incentives matter?

ThomasH writes:

These consequences were predictable and presumably predicted, results of the prior decision to go with the Romneycare model rather than the Swiss or Canadian model.

jdgalt writes:

Companies that cut hours for this reason had better pay attention to that phrase "full time equivalent". A university with 200 instructors that makes them all work only 29 hours per week is still going to have 200*(29/40) = 145 "full-time equivalent employees" and pay the penalty.

Dorty writes:


the "full time equivalent" is used to calculate the 50 + employees in determining whether you fall under the requirement or not. However, the penalty only applies to employees who work 30 hrs or more.

So in your example, having 200 instructors all working 29 hrs, they would be considered meeting the 50 full time employee threshold. But since none of the instructors work more then 29 hrs they do not get levied a fine for not providing insurance. But, if they end up teaching 1 extra hour they become "full time" and the fine applies.

I expect to see more go the 28 hr route to leave room for error...

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