Making Jobs More Expensive

The recently passed health care “reform” noted by James below is going to have another impact some have noted, but many have not given much thought too. It will, in effect, make labor more expensive. When something becomes more expensive for firms then tend to use less of it. They will substitute away from it if possible, or failing that hire fewer workers, and in some cases simply shut down. Other firms might relocate to other countries. The bottom line effect is to make employing labor more costly. Not exactly a brilliant move when the unemployment rate has just hit 10.2%.

This will also have a further adverse impact on the fiscal situation. To the extent that the labor market takes longer to recover because of this legislation tax revenues will be lower, and thus the deficit higher and the public debt will grow faster. This kind of effect is probably not included in the CBO’s $1.1 trillion dollar cost of health care “reform”.

FILED UNDER: Economics and Business, Government, Health Care, US Politics
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. Herb says:

    First off, let me say that the concerns you bring up in this post are very legitimate. Making labor more expensive, hiring fewer workers, shutting down, firms moving to other countries (presumably ones with no government-supported healthcare?).

    But due to various reasons, these things are already happening. Don’t both unions and aggressive immigration enforcement (not to mention a college education) make labor more expensive? Aren’t reluctant lenders already contributing firms to hire fewer workers? Didn’t Circuit City, CompUSA and all those Conde Nast magazines shut down before the house bill passed? Aren’t firms already moving offshore and don’t many operate mostly offshore anyway?

    Your point (if I’m reading it right) is that the reform bill will only hasten all of these trends, but you should present an actual case, instead of just reading off the accusations.

    Can you conceive of any areas where the reform bill will actually improve things?

  2. Partial list of countries with a more socialized health care system than ours: France, Germany, Sweden, Japan, Canada.

    Partial list of countries with lower unemployment than ours: France, Germany, Sweden, Japan, Canada.

  3. Mithras says:

    When something becomes more expensive for firms then tend to use less of it.

    Man, we’re back to Intro to Econ. Yes, Steve, we know. Where the D curve crosses the S curve is where we end up. Societally, we’re already incurring these costs, because people show up at ERs and – what do you know! – they need medical care. Turns out, we can’t just take them out and shoot them if they can’t pay. So, do you have anything constructive to suggest other than “No!”?

  4. G.A.Phillips says:

    Partial list of countries with lower unemployment than ours: France, Germany, Sweden, Japan, Canada.

    lol, being a slave to a socialist or communist government don’t count as a job in the way most of us understand it Harry:)

  5. Snarfster says:

    lol, being a slave to a socialist or communist government don’t count as a job in the way most of us understand it Harry:)

    as opposed to being a slave to your jobs corporate masters to keep your health care.

    some of us who own businesses would have like to seen a single payer system that covers every person.

    if done right cuts government….
    1) eliminate workers comp. since everyone’s covered
    2) eliminate medicare since everyone’s covered
    3) eliminate medicaid since everyone’s covered

    and the benefits and transportability of labor….
    1) change jobs without losing health care
    2) start businesses without losing health care

    and benefits to system….
    1) doctors/hospitals never get stiffed
    2) emergency rooms become emergency rooms

  6. G.A.Phillips says:

    as opposed to being a slave to your jobs corporate masters to keep your health care.

    I don’t have a corporate master or health cace, but I still don’t want some ruler stealing from hard working folks to take care of me.
    I know I must be crazy.

    some of us who own businesses would have like to seen a single payer system that covers every person.

    And some who don’t are not trying to be part of the burden, and make deals to pay off our health care when we need it:) something I would be better at if some government handout system wasn’t stealing most of the money that I EARN!!!!!!!!!!

    I would like to see people that work be able to get the help that they need and I would like to help help those who can not help themselves, not be a slave to anything or my money be a slave to help enslave by way of dependency!

  7. Snarfster says:

    I don’t have a corporate master or health cace

    then consider yourself lucky to never have had a major issue (say a bypass that costs $250K+) that you can’t afford to pay for, lose everything, and then become a burden to the rest of us paying taxes so you can live.

    at least try not be a burden to the rest of us taxpayers and die before you accept any health care you can’t afford to pay for when your number comes up (and it will someday, somewhere).

    yeah everyone’s a libertarian/teabagger until they get cancer or some serious illness, run out of money, and then find jesus wanting to live no matter who else has to pay for their previous goofy bumper sticker beliefs.

  8. Rick DeMent says:

    As usual Mr. Verdon simply lacks the imagination to think of the positive benefits to the economy that universal coverage offers. Snarfster mentioned a few. the biggest benefit is that people will be free from making economic decisions based on the need to maintain health care coverage. it would become much cheaper for a person with family to become an entrepreneur not having to gamble his family’s solvency on a dream. This alone would mitigate 90% of the issues he sites.

    Further Mr. Vardon seems to be under the fantasy that every single thing he mentioned, jobs fleeing to lower cost labor markets, is happening and will happen just as quickly as it can whether we have universal health care or not. My only real concern is why isn’t his job going to someone in a third world country with a Phd. in economics who will do it better for a quarter of his bloated salary? My guess is some form of discreet protectionism.

  9. G.A.Phillips says:

    then consider yourself lucky to never have had a major issue (say a bypass that costs $250K+) that you can’t afford to pay for, lose everything, and then become a burden to the rest of us paying taxes so you can live.

    lol ya ya, so you think I don’t have major issues…

    If I can’t afford to pay for it I have people who care about me and if they can’t help the I guess ima die.

    at least try not be a burden to the rest of us taxpayers and die before you accept any health care you can’t afford to pay for when your number comes up (and it will someday, somewhere).

    hey thats what I was just saying….

    yeah everyone’s a libertarian/teabagger until they get cancer or some serious illness, run out of money, and then find Jesus wanting to live no matter who else has to pay for their previous goofy bumper sticker beliefs.

    lol, I am not a libertarian or a teabagger, but I know what you are, a stable hand…..

    But I do love a good tea party:)

    And for you’re information I’m a troll, and when I have to make a choice between, my food, my smokes, my cable TV, my Internet, my health care, or my charitable contributions, I going to stop buying food and smokes and start eating ******* liberals and then grind up their bones and smoke that ****!

  10. G.A.Phillips says:

    My apologies Steve and Snarfster , no caption contest yet, and I’m feeling kind of blue, Obama has not provided free health care to my O line yet, and this caused my team to get peowned by dudes dressed like cremesicles yesterday….

  11. odograph says:

    If you want a little exchange that exemplifies America in 2009, this is it:

    Partial list of countries with lower unemployment than ours: France, Germany, Sweden, Japan, Canada.

    lol, being a slave to a socialist or communist government don’t count as a job in the way most of us understand it Harry:)

    Name a fact that should be positive (things that work), and you can still make it go away with a word (socialist).

    The sad thing is that to a time traveler from the 19th century, we’d be right in there too. There isn’t that much difference between the market democracies … France, Germany, Sweden, Japan, Canada and USA.

    In a psycho time small differences become everything.

  12. odograph says:

    BTW, on the main subject. It’s too bad we didn’t do vouchers for basic health care insurance. Those would have made our labor markets more flexible and efficient. Not only would small businessmen be able to add employees at lower marginal costs, large businesses would be able to expand staff with lower long term pension impacts, and employees themselves would be more free to leave a dead end job to do their entrepreneurial dream.

  13. G.A.Phillips says:

    Name a fact that should be positive (things that work), and you can still make it go away with a word (socialist)

    Dude that crap don’t work never has never will it’s the Point you guys keep missing……..

  14. odograph says:

    France, Germany, Sweden, Japan, Canada … those are all nice places to live, right G.A.?

    You’ve got to be a psycho to think they are all Gulags or something.

  15. Zelsdorf Ragshaft III says:

    Two things. Name one government program that ever came in under budget. How do you compete with government? They make the rules and print the money. Just one more. Name a product or service government has made less expensive? Careful, less expensive in the grand sense means for everybody.

  16. odograph says:

    There are a lot of things that have gotten cheaper in the last century, in the grand sense: “hours of labor” required to purchase them.

    That’s the triumph of market democracy. It’s a mistake though to pretend that market democracy is the same thing as a free market. What part of cheap food was entrepreneurial and what part was government R&D? Why pretend it was one or the other? Maybe the strength was in the mix.

  17. odograph says:

    Wow, an Interesting chart as part of this article.

    I’m right there in the blue bar, the majority position in every one of the market democracies. The interesting thing about the USA is that the “free market” believers, while a minority, are enough of a minority to truly f-up the process.

  18. JVB says:

    I’m perplexed at why those who think working/living in a socialist country don’t just leave and make their dreams come true. They obviously are very frustrated (or were before President Obama) by the free market hold on this country. It’s got to be annoying to know that even when the liberals open up and make big wind they still only represent a fraction of true American values in this country. Book your flight and take up residence in your favorite socialist/communist country…no hard feelings.

  19. Snarfster says:

    Book your flight and take up residence in your favorite socialist/communist country…no hard feelings.

    errrr did I miss something. your team lost big time.. lost prez, house, and senate. maybe your team should book a flight to a nice 3rd world dictatorship where you can rule by decree. so it’s your team who is minority and our team who won with its majority.

    duh some people just don’t understand bigmouth and loud isn’t a majority it’s just annoying.

  20. odograph says:

    JVB, you don’t even know the country or world you live in. You are in the minority here in the US.

    Maybe you should go to Poland or Pakistan? The two other countries with high levels of “free market” believers? Some winners they are, eh?

  21. G.A.Phillips says:

    France, Germany, Sweden, Japan, Canada … those are all nice places to live, right G.A.?

    ya I guess, but I don’t want to live there or like they do, hell I would already be in prison in half those countries on hate crime charges for joking with you guys….

    A nice place to live for some a gulag for others?

  22. Steve Verdon says:

    Partial list of countries with a more socialized health care system than ours: France, Germany, Sweden, Japan, Canada.

    Partial list of countries with lower unemployment than ours: France, Germany, Sweden, Japan, Canada.

    Jesus, talk about post-hoc ergo propter hoc. You really think that this policy change now will actually lower unemployment. Even considering that the countries in your list have had socialized medicine for decades?

    Snarf and Rick,

    The current legislation will do nothing to those programs for quite sometime. Second it will increase the costs of hiring people, and keeping current workers. Now, perhaps you have listed absolutely NO benefits to employers.

    Try again.

    And Rick,

    Further Mr. Vardon seems to be under the fantasy that every single thing he mentioned, jobs fleeing to lower cost labor markets, is happening and will happen just as quickly as it can whether we have universal health care or not.

    WTFAYTA? I think you meant to say something, but did such a horrendous job trying to say it that the point got completley lost.

  23. G.A.Phillips says:

    errrr did I miss something.

    Ya people are waking up in large numbers because your neocom leaders are moving to fast.

  24. Steve Verdon says:

    By the way France’s unemployment rate as of September 2009 was actually higher than our unemployment rate in the same month, (10% vs. 9.8%). And Japan has traditionally had a much, much lower rate of unemployment than the U.S.

  25. reid says:

    Proof by assertion? I didn’t see much evidence for the claims. Looks like a brief anti-reform rant based on a questionable assumption. I can just as easily believe the commenters who say it will reduce unemployment, and that a single-payer system would be even better. Maybe you’re right, but you’re going to have to try harder to convince anyone!

  26. Panicked Wall Street reacts to passage of disastrous health care plan by sending the Dow up 175 points.

  27. reid says:

    And my intuition from this discussion of other countries is that the health care system just doesn’t make much difference to employment levels. I’m admittedly ignorant, but my guess sounds as good as anything else I’ve seen here….

  28. steve says:

    I feel pretty confident that we are not able to accurately predict what this will do to business, just as we were unable to predict what would happen if we let banks leverage at higher rates. There are costs to not having health care and health care via ER is very expensive. Follows is a link to a post that takes a stab at the issue.

    http://www.boston.com/bostonglobe/editorial_opinion/oped/articles/2009/11/07/the_cost_of_not_enacting_health_care_reform/

    While there are flaws in this article, feel free to find them, the paper from which the article is derived from has very strong methodology IMHO. It is very well done for such a large study (with the caveat that I do not know if they are correct about age stratification.) This study shows about 45,000 deaths associated with a lack of health insurance.

    http://www.ncpa.org/pdfs/2009_harvard_health_study.pdf

    Steve

  29. Our Paul says:

    Said it before, but I will say it again. Data speaks for itself. When it comes to health care, nobody can argue against the following facts:

    (1) We pay more for health care than any industrialized country in the world.

    (2) The rate of increase in health care costs is greater than any other country in the world.

    (3) Despite this cost burden, our health care outcomes are worse than most industrialized countries in the world.

    (4) Close the 17% of the population has no health insurance, close to 35% are under-insured.

    (5)By shifting the cost of medical insurance to our industrialized base we succeeded in becoming non competitive and shipping our better paying jobs over seas.

    To which our ace observer of the passing scene, incisive and innovative thinker, offers this profound wisdom:

    It will, in effect, make labor more expensive. When something becomes more expensive for firms then tend to use less of it. When something becomes more expensive for firms then tend to use less of it. They will substitute away from it if possible, or failing that hire fewer workers, and in some cases simply shut down. Other firms might relocate to other countries.

    Steve my lad, firms have already relocated to other countries. Your argument this time around is silly. You are saying we are leaving the barn door open, after most of the horses have already left, precisely because of the cost of health insurance.

    The House bill is weak, overtly anti-women, and gradually labeling the Republican’s as the re-incarnation of the Know Nothing Party. Keep your eyes on the individual 5 components of the health care problem outlined above. Unless you present viable solutions to these 5 components, you are prattling into the wind…

    Pssst 1: Meanwhile for those whose brain synapses have not been destroyed by rigid adherence to ideology, childhood poverty rate in a country comparison can be found here

  30. Rick DeMent says:

    steve,

    Your right this was pretty mangled:

    Further Mr. Vardon seems to be under the fantasy that every single thing he mentioned, jobs fleeing to lower cost labor markets, is happening and will happen just as quickly as it can whether we have universal health care or not.

    I’ll fix it:

    Further Mr. Vardon seems to be under the fantasy that every single thing he mentioned, jobs fleeing to lower cost labor markets, isn’t happening right now and has been happening for the last 30 years, more or less, and will happen just as quickly whether we have universal health care or not.

    … but others have said it better.

  31. Herb says:

    “By the way France’s unemployment rate as of September 2009 was actually higher than our unemployment rate in the same month, (10% vs. 9.8%).”

    Ah, but as Al Franken once famously said the rate of medical bankruptcies in France is zero.

    So they had .2% higher unemployment but 100% fewer medical bankruptcies? If that’s not an outright improvement, I’d call it a pretty good trade.

  32. Drew says:

    Some of the comments here are hysterical. Some hysterically funny.

    As someone who owns businesses, and spends most of his time with business owners, I can tell you that escalation of health care costs has been a vexing problem for some time. But the error in commentary here is the notion that this community doesn’t perceive that it will escalate to unimaginable heights under the current legislative proposal, as S Verdon observes.

    More importantly, this prospect has the small to medium sized business community absolutely frozen in inaction wrt growth initiatives and employment. More directly, they are scared shirtless.

    So many of you are in denial and all wrapped up in your govt/business/employee theory.

    This is reality: nobody but a fool is making aggressive growth and employment plans in the current environment………..the ridiculous claims of some here aside.

    Not good for the Average Joe.

  33. odograph says:

    So did you support a better plan, Drew?

  34. odograph says:

    Note the dynamics: A majority of Americans support universal healthcare. In that environment minority conservatives can either be a spoiler, hoping to kill some plans and inherit the best of the lot, or they can support the best path.

    A majority of Americans would pay higher taxes if it meant health insurance for everyone, according to a new CBS News/New York Times poll — though many worry that the nation’s economy will suffer if the government were to offer universal health care.

    I’d say sniping did not really help. The thinned crop of proposals became a path-dependent descent into bad politics.

  35. Drew says:

    “Do,” not “did,” odo. But that’s another post. Try, hard as it might be, not to be light.

    Actually, as part of another post to be composed, I think you had perhaps the key observation of the thread: the role of vouchers.

  36. Tlaloc says:

    But the error in commentary here is the notion that this community doesn’t perceive that it will escalate to unimaginable heights under the current legislative proposal, as S Verdon observes.

    Well business owners have never been the brightest crowd. Still you’d think they might grok that everyone else in the OECD has at least a public option if not single payer and everyone else int he OECD pays less than we do for health care while most of them get as good or better value for what they do spend.

  37. What will happen in the small business community is that those business owners who have managed to provide insurance for their employees will no longer be forced to compete with the slackers who did not.

    No doubt a lot of business owners hate the idea of a level playing field. But I rather doubt that the better businesses, the ones that had already found a way to take care of their people, will be terribly upset.

    Interesting how Drew doesn’t mention that some businesses will actually gain a comparative advantage by this. I mean, it’s pretty obvious.

    And equally interesting that broadbrushes — “Nobody but a fool” — and not only tosses both insured businesses and uninsured businesses in together, but businesses from areas where the economy is strong with those where it is weak, areas where universal coverage is already the rule, unites every form and type of small businesses together into a single monobloc . . . and then accuses everyone but himself of hysteria.

    Drew’s evidence? He owns businesses and talks to other guys who own businesses. Pizza parlors? Check cashing companies? Software developers? Car dealers? Video production companies?

    Self-select your data much Drew?

  38. anjin-san says:

    But the error in commentary here is the notion that this community doesn’t perceive that it will escalate to unimaginable heights under the current legislative proposal, as S Verdon observes

    If this is an economic catastrophe in the making, the markets reaction today was an interesting one…

  39. Anjin:

    Surely you’re not suggesting that the wisdom of the free market is superior to the wisdom of Libertarian bloggers and their comment writers! I mean, what kind of ideology would posit the superiority of free markets?

  40. Tlaloc says:

    Surely you’re not suggesting that the wisdom of the free market is superior to the wisdom of Libertarian bloggers and their comment writers! I mean, what kind of ideology would posit the superiority of free markets?

    Ouch.

  41. odograph says:

    OK Drew, if you remind me that you “Do” I will take that protest about this plan in a different light.

  42. Well business owners have never been the brightest crowd.

    No elitism here. Look! There’s Elvis!

  43. An Interested Party says:

    No elitism here. Look! There’s Elvis!

    Awwww…did someone touch a nerve? Really, that comment is no more offensive than many of the anti-government diatribes that are often displayed in these parts…