Monday, August 4, 2014

The PPACA Economy: A Crippled Recovery and Chronic Underemployment

While the last two months of government jobs reports have not provided entirely negative news, they have reiterated a troubling trend showing fewer adults in the workforce and a push toward involuntary part time employment. Our painfully slow economic "recovery" hampered primarily by the Patient Protection and Affordable Care Act's (PPACA's) massive new regulatory burdens and taxes on U.S.
business have further led to an equally concerning sub-trend:

  • older workers forestalling (or foregoing) retirement; and 
  • workers between 25 and 54 years old having access to fewer and fewer jobs.

In looking at July and June's reports together, we see that the economy lost 238,000 full time jobs while adding 851,000 part timers. PPACA imparts a new "tax" on employees working more than 30 hours in a week in 2015 as employers will be compelled to buy a health plan costing between $3,000 and $8,000 per employee per year or pay a $2,000 non-tax deductible fine. In response, every industry that can is pushing full time employees below 30 hours a week to keep labor costs affordable. This trend particularly hampers the hospitality and service industries. Think of this as the affordable labor response to the "Affordable Care Act."

Investors Business Daily reports, "the number of workers clocking in at just over 30 hours a week fell in June to an all-time low, relative to those putting in fewer than 30."

And what may be worse is that if this trend is not reversed soon, it could become a permanent change to our economy. Warren Meyer, writing at Forbes explained the practical realities of this shift concisely.
...The service industry generally does not operate 8 hours a day, 5 days a week, so its labor needs do not match traditional full-time shifts. Those of us who run service companies already have to piece together multiple employees and shifts to cover our operating hours. In this environment, there is no reason one can’t stitch together employees making 29 hours a week (that don’t have to be given expensive health care policies) nearly as easily as one can stitch together 40 hours a week employees. In fact, it can be easier — a store that needs to cover 10AM to 9PM can cover with two 5.5 hour a day employees. If they work 5 days a week, that is 27.5 hours a week, safely part-time. Three people working such hours with staggered days off can cover the store’s hours for 7 days.

Based on the numbers above, a store might actually prefer to only have sub-30 hour shifts, but may have, until recently, provided full-time 40 hours work because good employees expect it and other employers were offering it. In other words, they had to offer full-time work because competition in the labor market demanded it. But if everyone in the service business stops offering full-time work, the competitive pressure to offer anything but part-time jobs will be gone. The service business may never go back. ...
As we continue to see less full and more part time work, it pushes older workers to continue working; forestalling retirement. The latest jobs report showed that fewer and fewer older workers are retiring making it tougher on the key 25-54 year old demographic to find and maintain any employment. The 25-54 year old group shed 142,000 jobs in the July report.

In total, 11.4 million Americans age 16 and over have left the workforce since President Obama took office and began the creation of PPACA in January 2009, according to data released last week from the Bureau of Labor Statistics (BLS). While the the officially reported unemployment rate came in at an improving 6.1% in July, actual unemployment is much higher than that. Professor of Business and Economics, Peter Morici of the University of Maryland projects that the real unemployment rate among U.S. citizens and permanent residents is at least 18%.

The participation rate, which measures the percentage of the population that participates in the labor force by either having a job or actively seeking one (an admittedly loose standard as one only needs to be seeking a job to be considered participating), is just under 63%. That is the lowest it has been since the late 1970s.

    Image from Zero Hedge

Here is a brief overview of the July 2014 BLS Survey from Mish's Global Economic Blogspot:
  • Unemployment: +197,000 - Household Survey 
  • Involuntary Part-Time Work: +275,000 - Household Survey 
  • Voluntary Part-Time Work: -33,000 - Household Survey 
  • Baseline Unemployment Rate: +0.1 at 6.1% - Household Survey 
  • U-6 unemployment: +0.1 to 12.2% - Household Survey