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Supersized Fries, Downsized Jobs

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On November 2 the Bureau of Labor Statistics (BLS) reported that America added 171,000 jobs in October. President Barack Obama lost no time in proclaiming to crowds, “Today we learned that our companies have created more jobs in October than in any of the last five months.”

Meanwhile his unsuccessful presidential challenger, Mitt Romney, called the jobs report a “sad reminder that the economy is at a virtual standstill.”

Genesis of a disagreement

The disagreement between Democrats and Republicans is hyperpolitical, with each side determined to spin the numbers to its own advantage. But that doesn’t mean the two sides are equally inaccurate. For example, Obama omitted essential data when he declined to mention that 170,000 jobs were lost in October. This loss canceled out the gain.

Much of the disagreement comes from the parties’ tendency to draw their figures and conclusions from significantly different categories of data. The set of unemployment figures published monthly by the BLS includes six categories ranging from U1 to U6; each category measures a different type of unemployment. One of them, U6, is looming large and could have a disastrous impact on the ability of millions of Americans to earn a living wage.

The “official” unemployment figure comes from U3, which measures the number of people who have been unemployed and who actively looked for work during the previous four weeks. This is the figure that TV broadcasters typically use to report the unemployment rate. In October the rate was 7.9 percent. Most listeners would assume this means that only 7.9 percent of Americans could not find work in October, but this assumption is misleading.

U6 includes two important groups of nonworkers who are excluded from U3. The first is the group of “marginally attached workers.” These are unemployed people who want a job and have looked for one without success in the last 12 months. A subset of this group is called “discouraged workers”; these are people who have effectively given up on their chances for employment.

The second group included in U6 but excluded from U3 are part-time workers who want full-time employment but cannot obtain it. Their part-time work may not provide a living wage, but the BLS classes them with the employed. In October, 2012, the U6 rate was 14.6 percent.

The Washington Examiner (Nov. 5) explained why U3 and U6 are so far apart:

Since Obama was sworn into office in 2009, the number of Americans with full-time jobs has actually fallen by 370,000. The number of Americans with part-time jobs, by contrast, is up 1.5 million. Jobs are being created in the Obama economy, but they’re not the type of jobs Americans can live on. And Obama’s policies are clearly contributing to the shift.

Several policies have contributed to the surge in underemployment. For example, monetary policies and regulations on business have both deepened the recession and created uncertainty. This atmosphere makes businesses more likely to hire part-time or temporary labor.

A particularly large factor in increasing underemployment is the Patient Protection and Affordable Care Act (PPACA), or Obamacare.

Obamacare requires businesses with 50 or more full-time employees to offer them health insurance. A stated purpose of the policy is to protect unskilled or minimum-wage workers who may have little to no health coverage. Ironically, this is the group of workers most likely to be harmed by Obamacare. In an analysis titled “Obamacare Will Price Less Skilled Workers Out of Full-Time Jobs,” the Heritage Foundation estimated that the health-care mandate would increase the cost to an employer of a single minimum-wage worker by $3,588 per year; the cost of a minimum-wage worker with a family would increase by $11,026 per year. For perspective, consider that a full-time minimum-wage employee who works 2,000 hours a year would receive $14,978 in wages — only about $4,000 more than the cost of health-care coverage. And then there are the significant fines and penalties an employer must pay for violating any health-care rules.

In contrast, part-time employees who work less than 30 hours a week are not covered by Obamacare. This gives employers a huge financial incentive to replace full-time employees with part-time ones whenever possible. Hiring temporary workers or outside contractors is also more attractive.

Predictably, this new pattern of employment is already happening. At the moment, it seems most prevalent in an industry well-known for its minimum-wage workers: the restaurant industry, including fast food.

The Orlando Sentinel reported (Oct. 7),

In an experiment apparently aimed at keeping down the cost of health-care reform, Orlando-based Darden Restaurants has stopped offering full-time schedules to many hourly workers in at least a few Olive Gardens, Red Lobsters and LongHorn Steakhouses.

The Examiner pointed to another Obamacare incentive to hire part-time workers:

Many retail, food service and hospitality firms … already offer all of their full-time employees bare-bones health insurance plans. But these plans, which have coverage limits, will become illegal under Obamacare in 2014. Darden and other firms face a stark choice: Buy more expensive health insurance for their full-time employees (which normally costs more than $5,000 for each employee), pay the $2,000 fine or hire fewer full-time workers.

As one of America’s 30 largest employers, Darden currently offers health insurance to approximately 185,000 employees; some of the coverage is basic. Darden undoubtedly views offering these benefits as a good business policy, because they attract and keep valuable workers. It might seem as though Darden is already complying with Obamacare — until you consider Obamacare’s nondiscrimination provision, which requires that all full-time employees must be offered the same “minimum essential benefits” at a cost no higher than 9.5 percent of the employee’s household income. In short, a busboy must be offered the same coverage as a manager — unless, of course, that busboy is part-time or temporary. Then there is no need to offer him any coverage at all.

Other companies that are either implementing or testing similar part-time policies include White Castle, Pillar Hotels and Resorts (parent company of Sheraton and other hotel chains), Denny’s, CKE Restaurants Inc. (parent company of Hardee’s and Carl’s Jr.), and McDonald’s. These are only some of the companies that are beginning to be discussed in the media. Others range from manufacturers to booksellers.

If Obamacare were repealed, the U6 figures might start to turn around in 2013. But Obama has won a second term. As his legacy program is implemented over the coming years, more Americans will be forced into part-time or temporary work, leaving them unable to care for their families or to advance in their lives.

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    Wendy McElroy is an author for The Future of Freedom Foundation, a fellow of the Independent Institute, and the author of The Reasonable Woman: A Guide to Intellectual Survival (Prometheus Books, 1998).