The Biggest Economic Story of 2013...

Sorry, but it is not the fiscal cliff.   It is the complete shift in the US labor model, at least in the service sector, due to Obamacare.

Here is what I am doing for the rest of the year -- working with every manager in my company so that as of January 1, 2013, none of our employees are working more than 28 hours a week.   I think most readers know the reason -- we have got to get our company under 50 full time employees or else I am facing a bill from Obamacare in 2014 that will be several times larger than my annual profit.  I love my workers.  They make me a success.  But most of my competitors are small businesses that are exempt from the Obamacare hammer.  To compete, I must make sure my company is exempt as well.  This means that our 400+ full time employees will have to be less than 50 in 2013, so that when the Feds look at me at the start of 2014, I am exempt.  We will have more employees working fewer hours, with more training costs, but the Obamacare bill looks like about $800,000 a year for us, at least, and I am pretty sure the cost of more training will be less than that.

This will be unpopular but tolerable to most of my employees.  The vast majority of them are retired and our company is merely an excuse to stay busy, work outdoors, and get a little extra money.

But this is going to be an ENORMOUS change in the rest of the service sector.  I have talked to a lot of owners of restaurants and restaurant chains, and the 40-hour work week is a thing of the past in that business.  One of my employees said that in Hawaii, it was all the hotel employees could talk about.   Many chains are working on mutli-team systems where two teams of people working part-time replace the former group of full-time employees.  2013 is going to see a lot of people (who are not paid very well to begin with) getting their hours and pay cut by 25%.  At the same time that they are required, likely for the first time since many are relatively young, to purchase health insurance.

It will be interesting to see what solutions emerge.  My bet is that it will become standard for people in the service sector to work two different jobs for 20-25 hours each with two different companies.  This will be a pain for them, but allow them to keep their income up.  The hard part may be coordinating shifts between companies.  For example, a company that divides their shifts into mon-tue-wed vs. thu-fri-sat cannot share employees with one who divides their shifts between morning and afternoon.  If given time, I would guess that just as the mon-fri workweek emerged as a standard, companies may adopt standard ways of dividing up the work weeks for part-timers, making it easier for schedules to mesh.


  1. Fred_Z:

    There will be fraud by employers and employees on an unprecedented and massive scale.

    Destroying the Law and respect for it is part of the plan, a desirable goal.

    May Obama and the Democrats rot in Hell.

  2. Sean Wise:

    I suspect that the ACA will cause much more disruption than you indicate. I agree that many in the service industry will be restricted to 28 hr per week jobs but incentives to hold a second job may be much smaller than you think. There are already dis-incentives built into with the earned income tax credit that cause some workers to stop working when their income gets to a certain level as the loss of these credits mean they keep very little reward for any extra effort they make. Now, think of someone looking at working two part time jobs each earning about $25K per year. With one job, their will be significant money from the EITC but with two jobs, the EITC goes and the cost for insurance (which is means tested in the ACA) goes up substantially. Will the ACA with the EITC create a situation where low to moderate income workers will have little incentive to work beyond a 28 hour week?

  3. obloodyhell:

    What we're talking about here isn't just a shift in employment, it's an overall shift in productivity.

    Once again: Welcome to the Obamanation.

  4. Eris Guy:

    There are bound to be some disruptions in a transition from a free, capitalist society to its opposite. No one should expect to survive without wounds, but we have been on this road for generations and at least are nearly the glorious socialist state with equality and social justice for most.

  5. LarryG:

    50 full time equivalent is what I've heard. but what you're doing if it succeeds and I doubt it will.. is allowing your
    employees themselves to get directly to the exchanges to get insurance you refused to help provide.

    surely you did not overlook this full time equivalent deal, eh?

  6. LarryG:

    re: socialism - does anyone think Singapore is "socialist"?, Hong Kong? Australia?

  7. Larryg:

    where did you get this blather? EITC does not care how you got your income guy... from one job or many. Have you read the tax code? ACA DOES means-test premiums - as it should. The canard that people will not work if they get "stuff" just refuses to die. This is why you guys lost the election. Keep saying it! :-)

  8. Michael Rizzo:

    I feel terrible for you. But not for the reason you think. After you spend all of this time, energy and real resources getting your workforce into that 28 hour per week sweet spot ... the Administration of the PPACA is simply going to change what they mean by "full-time" employee. I would wager on this.

  9. SR:

    Larry. It's called "at the margin." We know that plenty of people have stopped looking for work as unemployment insurance increases, and conversely when Clinton signed Welfare Reform into law,more people were moved from welfare to work. So if we lost the election by telling the truth, so be it.
    The EITC point is that at the margin, EITC loss disincentivizes further work.

  10. LarryGross:

    already has... full time EQUIVALENTS... this guy is so humped up over opposing Obama that he does not even bother to check the rules before he starts to take action. If he really did CARE about his employees,
    he'd be looking for the best way to help them without hurting himself. Instead, it's all about his partisan politics.

  11. Joyce:

    Why don't you split the company into a separate company at each location and take the employee count under 50?

  12. frankania:

    Fire your employees and hire them back as private-contractors to do what they were already doing. Simple and less paperwork.

  13. Sean:

    This article at Bloomberg explains it, For the working poor marginal tax rates can run in the 40 to 80 percent range. Now throw in a very expensive medical benefit whose cost to the beneficiary is inversely proportional to income and the government might find they've built a benefit moat around the working poor that has to be crossed before hard work and effort can lead to economic gain.

  14. MNHawk:

    Well you heard wrong. My company has employees that number in the tens of thousands. At the bottom rung retail position, the directive is out. Under 30 hours for everyone except the store manage.

    Man up and own what you've wrought to this formerly great nation.

  15. jt:

    The full time equivalent calculation does look at total hours worked to determine whether you are over the 50 worker threshold, but employers do not pay a penalty for part time employees or the first 30 non-part time employees. Thus, you may be a large employer with 400 part time employees, but you don't pay the penalty or have to provide healthcare for any of them.

  16. Mondak:

    This doesn't hold up to audit at all.

  17. Mondak:

    If most of your employees are retired . . . and by that I mean almost all . . . then perhaps this is not as bad as you might think. Wouldn't Medicare pick them up if they are over 65? While you might still be required to provide coverage, the cost of that coverage could be very reasonable since you would be working on a commercial medicare advantage plan instead of full coverage.

  18. E.Z.:

    I believe they aggregate all businesses owned by the same person (entity?) to determine the employee count in order to avoid exactly this.

    But I could be wrong - it's a big, complicated law.

  19. LTMG:

    Santa Claus, being alive and well in Washington D.C. all year round, will proffer to politicians the re-election campaign plank that he or she will sponsor the Obamacare Correction Act to eliminate all exemptions. No gaming the system!

  20. morganovich:

    personally, i think moving a whole mass of workers to contract work will be great. if most workers suddenly actually had to make estimated payments quarterly instead of getting them deducted from checks, they would see (as i do) just how much they are paying and get really pissed off. tax day will no longer be about the cleverly framed "refunds" of your own money which was loaned interest free to the treasury but about cutting a check. that's a very tangible and visceral experience. the first time you write a huge tax check, it really changes your perspective. even the folks not paying income tax will hate this as they are still writing checks to fica. we have zero employees. everyone is a partner or on contract work. they are well paid (i don't think anyone here makes under 6 figures) but no way would we deal with the horrendous complexities of having actual employees. i suspect that this is going to be a major trend.

  21. Roy Kerns:

    Blather? Larry, you write as if winning an election (by a mere few percent, at that) repeals reality. I expect that you and many others will go one step further: when in January that reality begins checking in, you will search for ways to blame it on something other than Obamacare. Possibly you yourself might prove an exception to that expectation. After all, you've had the benefit or reading the "blather" which predicted the future. When it happens, you will recall the conversation, maybe even this post. It will be interesting to see what you choose to do then.

  22. nehemiah:

    That is why the IRS hired 15,000 enforcement types.

  23. nehemiah:

    Employers who opt not to provide insurance pay a penalty. I do not believe an employer can assert that an employee who obtains Medicare exempts the employer from the penalty. The fact that the employee qualifies for Medicare and possible subsidy is separate from the employer's obligation to provide insurance.

    If this were not the case every business would be staffing up with Medicare qualified staff.

  24. nehemiah:

    Not so easy, the independent contractor rules can get pretty sticky. The IRS, EEOC, NLRB or other government agencies will pierce that relationship when it is form over substance. Compliance in this area will be stepped up significantly. Those 15,000 new IRS agents weren't hired to surf porn all day.

  25. nehemiah:

    E.Z. you are correct. This would fall under activity aggregation rules. Related entities will be grouped based on a number of factors, common ownership chief among them.

  26. obloodyhell:

    Yeah, Larry, it's got NOTHING to do with the COST being added to his business which will make his business into a negative-income company, which he specifically detailed out for you.

    Too busy flogging your own partisan BS to actually read the whole first paragraph, though, right?

  27. obloodyhell:

    It's the same with Social Security -- if you're getting partial benefits, and those are tied to current income (typically this works by reducing benefits paid $1 for every $2 more you make), this means that additional work actually pays only half as much. Why work more, then, unless it means you're making A LOT more such that it "fills" that moat and then quite a bit more?

    This simple, basic idea is much, much too complex for liberal idiots like Larry to grasp.

  28. nehemiah:

    Good point. I'd like to repeal the XVI Amendment, but that may be a bridge too far. However, if we eliminate government's payroll withholding authority, repeal might follow pretty quickly.

  29. CraigNCowartEsq:

    The amazing thing to me is there are people in this comment thread that don't recognize that imposing $800,000 cost is any big deal,and that its ok for the government to confiscate it. The Leviathan will eventually come for you, and when it does, the big fish will have been eaten.

  30. Mark:

    The other ridiculous provision in ACA is the penalty if the health insurance offered is "unaffordable". We employ over 400 employees and because the ACA fine is non-tax deductible, we could consider offering the insurance. I calculate that even subsidized our participation rate would be about 50%, so if our cost of the insurance is $8,000 per year it would be a break even (50% participation, 50% tax).

    The problem with this is most of our employees are lower income. It is almost a certainty that their insurance would cost more than 9.5% of their total household income. And, if that is the case, ACA would then access us a $3,000 penalty on top of our insurance cost.

    That is completely insane.

    What is going to happen is we are going to drive the costs down as much as we can. What this means is anyone who we can force to work under 30 hours per week is going to lose hours and income. Next, our starting wage will be much lower than what it is currently and employees will not receive any increases in pay for about 2 years. Lastly, since we already offer a small insurance plan that will be eliminated.

    So, here is the end result. Our employees will lose disposable income. SInce there is incremental cost, from our (employer) point of view their compensation cost has increased, so they will not be getting any increases in income. Then, they will be forced to purchase their own insurance for themselves and dependents with reduced disposable income.


    BTW Warren, you need to get you full time worker count under 30. The calculaiton for "large employer" uses full time equivalents. So, even if you force your workers under 30 hours, to caluclate monthly FTEs you take total hours/130. So, 2 15 hour workers/week combine to 1 FTE. Since you would then be a "large employer", you get 30 exemptions and pay the $2,000 fine on the number of workers workign more than 30 hours/week. And, the calculation of FTE is not the same as what normal companies look at the world. If you have 40 employees working 40 hours per week, you actually have 50 FTEs using hte ACA calculation and would be subject to a tax of $20,000.

  31. Brian Dunbar:

    "2013 is going to see a lot of people (who are not paid very well to begin with) getting their hours and pay cut by 25%. "

    Clearly the solution is to raise the federal minimum wage by 25% to compensate.

    Congress should get right on this!

  32. Methinks:

    Dear Lord! The ACA math gave me a headache.

    You provide more empirical evidence that the people who get the goods and services are the people who pay for them - whether in a transparent transaction or in a more opaque way. You've effectively shifted the cost of the Obamacare disaster onto the employees who "benefit" (I use that term loosely) from it. This is how it always works. There is no free lunch and advocates of Obamacare who thought they would be getting one are about to learn that lesson good and hard.

  33. Mondak:

    You are correct, but when an employer buys insurance for someone who is already covered by medicare, they are only paying for the delta between what the commercial plan covers and what Medicare covers.

    This means that the cost per employee in this case is likely less than 10% of what it would be for other employees.

  34. Methinks1776:

    Sean, nice reference to tax cliffs. A loss of government subsidy resulting from increased income is an increase in the marginal tax rate and a disincentive to work. For a much more fleshed-out discussion of exactly that, here's John Cochrane:

  35. Methinks1776:

    SR, you're talking to a moron who thinks that the law of supply and demand is mere hypothesis and that things that have not existed in the past cannot exist in the future by virtue of not having existed in the past or present.

  36. skhpcola:

    Larry, if you weren't such an ignorant dumbass, you might be persuaded to realize how wrong you are about every damned thing that you opine upon. As it is, you just appear to be a typical liberal retard, spouting mantras and refusing to accept reality. You really are a source for some guffaws, although it's pitiful that an adult with access to the Internet can be as willfully stupid as you demonstrate here every day.

  37. LarryGross:

    re: the directive... check the law guy.

  38. LarryGross:

    not as ignorant as you knuckle-draggers though... I love hearing ya'll grunt.

  39. skhpcola:

    It's "y'all," you ignorant and ungrammatical twat.

  40. LarryGross:

    what ya'll know won't fill a thimble in the real world, Do you know when EITC was first created and by who?

  41. LarryGross:

    he thinks the "theory" of supply/demand does not function as theorized in the real world. A pragmatic acknowledgement of the real world unlike some.

  42. LarryGross:

    if you make 25K separate from your SS benefits, then the benefits are taxed. It's in the code.
    but how does that keep people from working? Most people will still end up with more money than if they did not work.

  43. LarryGross:

    grunt. grunt. !!!!

  44. Methinks1776:

    I stand corrected. Larry is even more of an imbecile than my first comment implied.

  45. LarryGross:

    we've been through this many times and Methinks reaction is like a little girl throwing a tantrum.

    a quick example. Anti-price gouging laws. They DO very much distort and pervert supply/demand theory, but when I actually say this, Methinks pouts about it.

  46. Methinks1776:

    That's where you're wrong, Larry. I just shake my head and laugh.

  47. Sean Wise:

    Interesting article. They refer to "cliffs" for low wage workers. I particularly liked this graph and the comment on it, I would call the income region beyond the cliff before there is any benefit of higher income as the moat.

  48. LarryGross:

    no you don't you exhibit extreme diarrhea of the mouth... even though all I have
    said is to remind you that theory is not practice and practice is what we deal with in
    the real world. I totally subscribe to the theory of supply/demand - with the proviso that
    it does not work exactly the way it is theorized - in the wild.

  49. LarryGross:

    do you have something in particular you are alluding to? the "blather" I was alluding to was what appeared to me to be people ignoring the FTE issue with regard to the number of employees in a business. If you want to expand it out to the whole issue of ObamaCare... yes.. we did have an election about it and yes it was close but what the election did prove was that enough people were not opposed to ObamaCare to vote out the POTUS. that's what elections are about.

  50. Methinks1776:

    Yep. That's quite a chasm. That woman would have to nearly triple her income in one jump to cross the chasm. The disincentive to produce is very powerful and the irony is that every new entitlement raises the marginal tax rate for the recipient.