Obamacare cost...

[byu71]

He has never heard of the concept of looking for expenses to cut?

Maybe he has the same approach as a democrat. You should understand that appoach.

[imanihonjin]

Oh brother.

This exact process happens every single day. A company loses a large amount in litigation- how do they respond? By putting more cost control pressure on managers. A company loses a key account- how do they respond? Putting more cost control pressure on managers and demanding more from sales. Companies with more than 50 employees are big companies with decent revenues. I guarantee they have options for additional cuts. That doesn't make it easy nor painless and those cuts may have their own hidden costs (cut travel for employees and there is less face time with customers which could hurt sales for example). The point is that eliminating employees is not the only option (which was your argument). Neither is pushing all of them to part time work. Those moves have their own costs and are often the choices of last resort.

Companies always think they are running efficiently but when faced with greater cost pressures they adapt or they go under. Some companies might not figure this out and they will fail. Others will figure it out and will succeed. This is true of every regulatory change. SOX adds huge compliance costs but now that the regs have been in place for a while corporate America as adjusted and still is thriving.

One likely result is that wages will decline in companies that previously offered no health insurance as they shift to include health care in compensation. Undoubtedly some other companies will lay off employees and will shift to part time labor. But will it be widespread? There isn't much evidence of that right now (including the helpful survey someone included earlier).

And therein lies the problem....you don't think it is a big deal that 20% of small business owners, you know the type of businesses that employ the majority of working Americans, adjusting their employment needs to accommodate the added Obamacare costs is a very big deal. That is many many good people who are out of work or have their hours reduced, people who can least afford it. It is a big deal.

[imanihonjin]

No, not what I am saying.

Health care is a bit unique, at least in a couple of senses. First, other competitors with more than 50 employees are already likely offering health insurance to employees even if your business isn't. So how are they doing it? Odds are they are controlling costs in other areas better. They are also likely paying employees less. This isn't an expense that is new and unprecedented. It's one most every large company already deals with. That means you can too.

Second, the government will absorb some of the costs through the tax code. That softens the blow and is exactly why many companies already offer health care.

If this was a completely new cost being borne by companies the most likely result would be price increases. That may still happen in some industries. You may also see some employees laid off. You may see some salaries compressed. You may see more part time hiring. You will almost certainly see costs cut in other areas, at least in the short term. You might see some or all of those things, but what we don't see yet is evidence that full time work is being converted into part time work which was the claim here.

You are ignoring the fact of supply and demand and its relevance to salaries. If I pay someone $30k it is because that is what the market has determined the value of their labor to be. If I now have to pay them $30k and provide $10k of health insurance on top of that it would be irrational to pay someone a total compensation of $40k when their value to me is only $30k. Irrespective of other costs, their labor is only worth $30k. So now I am forced with cutting their salary to $20K to make up the difference, cut hours, or lay people off. Again these are the folks who can least afford any of these options. If I can pay the $40k then I am going to look for a person whose skill set is worth $40k a year and the $30k a year guy has to find somewhere else to go. This is tinkering with the free market and the unintended consequences are completely unnecessary and will cause a drag on our economy.

[Surfah]

And therein lies the problem....you don't think it is a big deal that 20% of small business owners, you know the type of businesses that employ the majority of working Americans, adjusting their employment needs to accommodate the added Obamacare costs is a very big deal. That is many many good people who are out of work or have their hours reduced, people who can least afford it. It is a big deal.

You know you could look at that and say 80% of small businesses aren't adjusting their employment needs to accommodate Obamacare.

[All-American]

I want to hear more about this theory that there are all kinds of costs to be cut and money to be saved in the business sector, and that Obamacare is simply providing the otherwise-absent incentive to do so. Somebody should call the Nobel folks in Sweden; I understand they give prizes for this kind of stuff.

[statman]

You are ignoring the fact of supply and demand and its relevance to salaries. If I pay someone $30k it is because that is what the market has determined the value of their labor to be. If I now have to pay them $30k and provide $10k of health insurance on top of that it would be irrational to pay someone a total compensation of $40k when their value to me is only $30k. Irrespective of other costs, their labor is only worth $30k. So now I am forced with cutting their salary to $20K to make up the difference, cut hours, or lay people off. Again these are the folks who can least afford any of these options. If I can pay the $40k then I am going to look for a person whose skill set is worth $40k a year and the $30k a year guy has to find somewhere else to go. This is tinkering with the free market and the unintended consequences are completely unnecessary and will cause a drag on our economy.

If you recall from your Econ II class, labor rates are not set by classic supply and demand. In the long run, the level of production is set where the marginal cost curve and the average cost cure meet. This is the most efficient output for the firm. From that curve we get optimal output. Move to a labor efficiency curve that plots the marginal product of labor on axes of output X labor cost, and price of labor is determined where the marginal product of labor meets the optimal level of output for the firm.

In other words - the firm determines it's optimally efficient level out output through its marginal and average costs.

In the long run, the firm will pay it's labor force the dollar amount defined by where the marginal product of labor curve intersects with the firm's optimal level of output.

Even shorter - Company says "we've determined that we need to make X widgets." Labor is paid by the marginal product of labor when output is X.

Labor is paid by what they produce...

It's not a classic supply and demand determination because the marginal product of labor (what an incremental unit of labor can produce) is not based on supply an demand. It's a matter of the efficiency of labor - determined by worker skill, technology, efficiency of the other means of production, etc.

Classic supply and demand for labor DOES have effects in the short run, but in the long run, they disappear. Those skills that are in high demand are so because of their marginal product of labor is high - they put out product that is of high value. Short term variations that are caused by simple supply & demand views of the labor market are eliminated as the market migrates towards paying workers the marginal value of what they produce at the firm's optimal level of output.

Changes in what output level is optimal can and do also change as short-term supply and demand curves cause changes. If labor suddenly gets more expensive in the short run, both the marginal and average cost would shift and a new optimal output would (could) be the result. At which point, assuming the efficiency of labor hasn't changed (as described by the marginal product of labor curve), the new long-term cost of labor would shift to where the marginal product of labor meets the firm's optimal level of output.

So - do supply and demand of labor play a role? Yes, in the short run. But firms quickly react, and the marginal and average cost curves shift, a new optimal output is determined, and the long term cost of labor is once again best described by where the marginal product of labor function intersects the firms optimal output.

I guess the thing that bugs me most is that you say the market is determining what my labor costs should be. That's not really true - in the long run, it's REALLY not true. My labor casts are determined by how productive workers will be when working for me while my plant is running at optimal levels. Those are all microeconomic questions, not macro S&D questions. Yes changes in the macro curves can an will drive changes in the micro curves, but a firm's decisions are made at the micro level, using microeconomic principles.

Talking about things like marginal production of labor on a macro scale is not really helpful because a worker's marginal worth is based on what work he's doing. You could talk about his marginal production doing AVERAGE work, but that's just a macroeconomist trying to talk about a microeconomic function in large terms. Doing that creates some explanatory value about what's going on in an economy, but it provides ZERO input about what should be done to change things. To change things on the macro level, a whole bunch of micro decisions need to be made. It's when macro guys like Paul Krugman have delusions of grandeur and look at the grossed-up macro curves and say we must clearly do X Y & Z - and then try to force change by fiat from above. But what REALLY should be done is government should get out of the way, let businesses hire to the optimal points THEY decide, and the whole thing will fix itself faster...

[calicoug]

I want to hear more about this theory that there are all kinds of costs to be cut and money to be saved in the business sector, and that Obamacare is simply providing the otherwise-absent incentive to do so. Somebody should call the Nobel folks in Sweden; I understand they give prizes for this kind of stuff.

It isn't so much a theory as a reality. When faced with an external cost that can't be avoided companies naturally look at whether other costs may be avoided. And that's the point. You guys keep wanting to argue that the only option companies have is to lay off workers. That's clearly false. Cutting other costs or finding new ways to increase revenue is always an option and in fact is almost always going to be the first option explored. Some won't be able to do it and will have to cut employees. That won't be a majority let alone 100% of all small businesses. I'm frankly more than a little surprised you are acting like this is a novel concept.

Under your theory, why aren't employees always laid off when costs increase?

[imanihonjin]

If you recall from your Econ II class, labor rates are not set by classic supply and demand. In the long run, the level of production is set where the marginal cost curve and the average cost cure meet. This is the most efficient output for the firm. From that curve we get optimal output. Move to a labor efficiency curve that plots the marginal product of labor on axes of output X labor cost, and price of labor is determined where the marginal product of labor meets the optimal level of output for the firm.

In other words - the firm determines it's optimally efficient level out output through its marginal and average costs.

In the long run, the firm will pay it's labor force the dollar amount defined by where the marginal product of labor curve intersects with the firm's optimal level of output.

Even shorter - Company says "we've determined that we need to make X widgets." Labor is paid by the marginal product of labor when output is X.

Labor is paid by what they produce...

It's not a classic supply and demand determination because the marginal product of labor (what an incremental unit of labor can produce) is not based on supply an demand. It's a matter of the efficiency of labor - determined by worker skill, technology, efficiency of the other means of production, etc.

Classic supply and demand for labor DOES have effects in the short run, but in the long run, they disappear. Those skills that are in high demand are so because of their marginal product of labor is high - they put out product that is of high value. Short term variations that are caused by simple supply & demand views of the labor market are eliminated as the market migrates towards paying workers the marginal value of what they produce at the firm's optimal level of output.

Changes in what output level is optimal can and do also change as short-term supply and demand curves cause changes. If labor suddenly gets more expensive in the short run, both the marginal and average cost would shift and a new optimal output would (could) be the result. At which point, assuming the efficiency of labor hasn't changed (as described by the marginal product of labor curve), the new long-term cost of labor would shift to where the marginal product of labor meets the firm's optimal level of output.

So - do supply and demand of labor play a role? Yes, in the short run. But firms quickly react, and the marginal and average cost curves shift, a new optimal output is determined, and the long term cost of labor is once again best described by where the marginal product of labor function intersects the firms optimal output.

I guess the thing that bugs me most is that you say the market is determining what my labor costs should be. That's not really true - in the long run, it's REALLY not true. My labor casts are determined by how productive workers will be when working for me while my plant is running at optimal levels. Those are all microeconomic questions, not macro S&D questions. Yes changes in the macro curves can an will drive changes in the micro curves, but a firm's decisions are made at the micro level, using microeconomic principles.

Talking about things like marginal production of labor on a macro scale is not really helpful because a worker's marginal worth is based on what work he's doing. You could talk about his marginal production doing AVERAGE work, but that's just a macroeconomist trying to talk about a microeconomic function in large terms. Doing that creates some explanatory value about what's going on in an economy, but it provides ZERO input about what should be done to change things. To change things on the macro level, a whole bunch of micro decisions need to be made. It's when macro guys like Paul Krugman have delusions of grandeur and look at the grossed-up macro curves and say we must clearly do X Y & Z - and then try to force change by fiat from above. But what REALLY should be done is government should get out of the way, let businesses hire to the optimal points THEY decide, and the whole thing will fix itself faster...

Isn't what you just said just a restatement of supply and demand, but using different terms? For instance paying a worker based upon the marginal value of what they produce is going to be based upon the supply or lack thereof of the skills they use to produce. You state that certain skills that are in high demand are so because of their marginal product of labor is high. Isn't that just restating that their labor costs more because their people are demanding that skill and that skill is rare?

[Color Me Badd Fan]

It isn't so much a theory as a reality. When faced with an external cost that can't be avoided companies naturally look at whether other costs may be avoided. And that's the point. You guys keep wanting to argue that the only option companies have is to lay off workers. That's clearly false. Cutting other costs or finding new ways to increase revenue is always an option and in fact is almost always going to be the first option explored. Some won't be able to do it and will have to cut employees. That won't be a majority let alone 100% of all small businesses. I'm frankly more than a little surprised you are acting like this is a novel concept.

Under your theory, why aren't employees always laid off when costs increase?

lol, he'll be here all week folks.

Businesses also cease operating when they can't adjust, leaner competition without the costs fill the void. Also rarely does an expense arise that is easily avoidable by simply cutting hours and hiring more pay time workers. It apparently hasn't dawned on you that employers will take the easiest route that this legislation gives them an incentive to take. You act like this is an increase in the cost of postage. It's a minimum of $3k per employee and the fact that you think this can easily be cut elsewhere and that businesses haven't already figured out ways to cut such a high amount to gain a competitive advantage just shows how clueless you are.

[imanihonjin]

It isn't so much a theory as a reality. When faced with an external cost that can't be avoided companies naturally look at whether other costs may be avoided. And that's the point. You guys keep wanting to argue that the only option companies have is to lay off workers. That's clearly false. Cutting other costs or finding new ways to increase revenue is always an option and in fact is almost always going to be the first option explored. Some won't be able to do it and will have to cut employees. That won't be a majority let alone 100% of all small businesses. I'm frankly more than a little surprised you are acting like this is a novel concept.

Under your theory, why aren't employees always laid off when costs increase?

Why in the world would company want to merely increase revenue for the sake of increasing revenue? Companies care about PROFIT. If they could have cut costs in other areas to reduce costs and increase profit, why in the world do they need to wait until Obamacare was mandated to do so? Wouldn't a stakeholder want to increase profit by reducing costs? Wouldn't he want to reduce costs to make his product cheaper to sell more of his product and increase market share and increase total profits? It is silly to suggest, and I think the reason we think your suggestion is really silly, that there is a bucket of costs that could be cut but for some unknown reason business owners haven't previously cut them to increase the return on their investment.

[All-American]

It isn't so much a theory as a reality. When faced with an external cost that can't be avoided companies naturally look at whether other costs may be avoided. And that's the point. You guys keep wanting to argue that the only option companies have is to lay off workers. That's clearly false. Cutting other costs or finding new ways to increase revenue is always an option and in fact is almost always going to be the first option explored. Some won't be able to do it and will have to cut employees. That won't be a majority let alone 100% of all small businesses. I'm frankly more than a little surprised you are acting like this is a novel concept.

Under your theory, why aren't employees always laid off when costs increase?

Because there are other alternatives which, though less undesirable, still inflict negative effects. Some firms lay off workers. Others reduce hours, hire part-time only workers, or avoid hiring altogether. The fact that these alternatives are better than layoffs is cold comfort in an already ailing economy.

When the market is functioning as it should, competition should provide all the incentive necessary to cut costs and increase revenue. If it really is the case that government intervention is needed to provide that incentive now and on a permanent basis, our problems go well beyond health care.

Fortunately, there is little reason to believe "reality" is what you think it is.

[Medfordcoug]

There isn't much evidence of that right now (including the helpful survey someone included earlier).

Well, this is only related to the company that I work at, but as of yesterday, according to our health care consultants, it appears that companies that use temps as full-time employees will have to provide health insurance for them. So that will change our current way of using temps. The discussion this morning was only using them 24 hours per week and maybe going to two shifts of temp employees. But you're right, there isn't much evidence of companies looking to do that.

BTW, regarding the idea of companies finding costs to cut, many large employers do that by moving operations to low cost locations like China, Vietnam, etc, of course that does not do much for workers in the US....

[imanihonjin]

No, not what I am saying.

Carried to the logical extreme.....that is exactly what you are saying.

[Pelado]

It isn't so much a theory as a reality. When faced with an external cost that can't be avoided companies naturally look at whether other costs may be avoided. And that's the point. You guys keep wanting to argue that the only option companies have is to lay off workers. That's clearly false. Cutting other costs or finding new ways to increase revenue is always an option and in fact is almost always going to be the first option explored. Some won't be able to do it and will have to cut employees. That won't be a majority let alone 100% of all small businesses. I'm frankly more than a little surprised you are acting like this is a novel concept.

Under your theory, why aren't employees always laid off when costs increase?

Contrary to your implicit argument above, the additional costs can be avoided. Small businesses are avoiding the costs. They are shifting to part-time employees.

[statman]

Isn't what you just said just a restatement of supply and demand, but using different terms? For instance paying a worker based upon the marginal value of what they produce is going to be based upon the supply or lack thereof of the skills they use to produce. You state that certain skills that are in high demand are so because of their marginal product of labor is high. Isn't that just restating that their labor costs more because their people are demanding that skill and that skill is rare?

Not to an economist. Answer that supply and demand drives labor prices on an econ test and you'll get the answer wrong, and might just get a staple driven into your forehead for good measure.

Employee pay is driven by what they produce. Regardless of how in-demand a particular employee is worth, no employer is going to offer him (in the long run) more than he produces. And if he's underpaid at one company, another might come in and offer him more - but still not more than he's worth.

Employees are worth what they produce within the production constraints of the firm.