House Small Business Committee Hearing
Federal Information & News Dispatch, Inc. |
Chairman Collins, thank you for hosting this important hearing today to examine the potential effects of the Patient Protection and Affordable Care Act's (ACA or ObamaCare) definition of 30 hours a week as full-time employment, and what this might mean for employment at small businesses.
My name is
Economic and Employment Growth
It is important to consider the impact of the ACA - or ObamaCare - within the context of our poor performance in recent years regarding both economic and employment growth.
Real GDP growth during this recovery has averaged only 2.2 percent. That not only comes in far below the 3.4 percent average since 1950, but also compares miserably to the 4.5 percent average during periods of recovery/expansion. So, in effect, economic growth during this recovery has been running at roughly half of where it should be.
Why does this matter? Well, keep in mind that if the economy grows at an annual average rate of four percent a year, our standard of living doubles every 17.5 years, while if growth averages a mere two percent then it takes 35 years to double the standard of living. The U.S. should not be content with growth of roughly 2 percent a year. It hurts us today, and far into the future.
Meanwhile, on the employment front, the latest data told a story of continued under-performance. Consider several key points.
First, in August, the labor force fell by 312,000 compared to July. Throughout the recession and subsequent recovery, the labor force participation rate has rather steadily declined. The August level of 63.2 percent was the lowest since
As for what's going on with actual employment, the federal government serves up employment data via two surveys. The establishment (or payroll) survey gets widely quoted in the media, and in August, nonfarm payrolls rose by 169,000. That's far below the 250,000 or so expected during a solid recovery.
But the other set of data, i.e., the household survey, is where we get the unemployment rate, and it also better captures start up and small business activity. Unfortunately, the reason that the unemployment rate declined in August to 7.3 percent from 7.4 percent in July was because a 115,000-drop in employment was outdistanced by the larger decline of 312,000 in the labor force.
To put this in perspective, if the U.S. had a labor force participation rate more in line with recent historical norms, the unemployment rate would be nearly 12 percent.
And what about the number of long-term unemployed? The number of people unemployed for more than 27 weeks came in at 4.3 million in August. That's down from the high of 6.6 million set in
In summary, as of August, we were still down by about 2.4 million in terms of employment compared to the pre-recession level (November 2007).
Compared to the same point in the economic recovery of the 1980s, after the arguably worse economic period of
No matter how you measure it, the U.S. is suffering through one of the worst recoveries on record in terms of both economic growth and job creation.
Given the ObamaCare employer mandate and the definition of 30 hours a week as full-time employment, we also need to look at full-time versus part-time employment. It must be noted that as for people who are working part time, but want full-time work, in August, this group working part time for economic reasons registered 7.9 million. That's fortunately down from the peak of 9.2 million set in
(Keep in mind that the
It is important to recognize that a dramatic shift has been going on in 2013 as to part-time versus full-time jobs being created. During this recovery, a bit more than 90 percent of jobs created have been full time. However, from
So, job creation thus far in 2013 has been overwhelmingly about part time jobs, which is a striking break from what normally happens, and speaks to the issue of how part-time workers are treated under ObamaCare versus full-time.
Small Business Role in Job Creation
Of course, it needs to be pointed out that small and mid-size businesses - that is, those with less than 500 workers - create the bulk of net new jobs in the economy. As the
Given the importance of smaller businesses to job creation, we should all be concerned about recent declines in various measures of entrepreneurship.
For example, a good take on early stages of entrepreneurship is the number of self-employed. Unfortunately, the trend after 2006 has been very troubling. In terms of unincorporated self-employed, the recent high of 10.68 million (seasonally adjusted) was set in
And not surprisingly then, data on business births revealed a big decline from 2006 to 2009, with some growth in 2010 and 2011, but levels remaining far below just a few years earlier. As for the total number of businesses, unfortunately, the data from the
The unmistakable and troubling trend in recent years has been a decline in the level of entrepreneurship in the U.S. That's worrisome for many reasons, including on the employment front.
For example, as reported by the
A similar finding was offered by Intuit's small business employment index, released on
Small Business Outlook and Incentives Under ObamaCare
A new survey of small business owners by TechnoMetrica Market Intelligence done for the
" Over three-quarters of small businesses (76%) said they were not likely to hire over the next six months."
* Among those likely to hire in the coming six months, 57% said they would likely hire full-time workers (28% very likely, 29% somewhat likely), and 77% said they would likely hire part-time workers (36% very likely, 41% somewhat likely).
* One third of small business owners said that ObamaCare has had an effect on their hiring decisions, including 21 percent saying it has had a "major" impact. Those businesses that said ObamaCare has had an impact on hiring decisions are largely firms with actual employees, versus sole-proprietorships.
" Most small businesses (63%) do not believe that ObamaCare will help businesses like them to purchase more affordable health insurance for them and their employees. More than half (52%) strongly disagree with the idea that it would help them obtain affordable health insurance." 12% of businesses are not yet sure.
Earlier this year, a Gallup poll put a variety of questions to small business owners as to the impact of ObamaCare on their enterprises. n2 Consider the following results:
* 48% of U.S. small business owners said that the 2010 Affordable Care Act would be bad for their businesses, versus 39% anticipating no impact and only 9% saying it would be good.
" 55% of small-business owners expect the money they pay for healthcare to increase. Five percent expect their healthcare costs to decline, while 37% say the health law will have no impact on what they pay for healthcare."
" When asked if they had taken any of five specific actions in response to the ACA, 41% of small-business owners say they have held off on hiring new employees and 38% have pulled back on plans to grow their business. One in five (19%) have reduced their number of employees and essentially the same number (18%) have cut employee hours in response to the healthcare law. One in four owners (24%) have thought about eliminating healthcare coverage for their employees."
In August, the
* 95.1% of businesses with 50 or fewer employees expected costs to increase due to the ACA, with 51.2% expecting cost increases of more than 10 percent.
* Among all businesses, the ACA provision cited most often (by 21.2%) as having the most significant impact in boosting costs was "Offering affordable coverage to all employees working an average of 30 hours or more a week in a month."
* As for workforce adjustments due to the ACA, among firms with 50 or fewer employees, 19.5% (11.3% already having done so and 8.2% planning to do so in the coming 12 months) said they are reducing "hiring to get/stay under the 50-employee ACA threshold for small employers."
* Also in terms of workforce adjustment responses, among firms with 50 or fewer employees, again, 19.5% (11.3% already having done so and 8.2% planning to do so in the coming 12 months) said they are "adjusting hours so fewer employees qualify for full-time employee medical insurance requirement."
Assorted media reports also have highlighted the threat of per-full-time-employee (or FTE) fines under ObamaCare leading to businesses cutting employee hours. A
And regarding the high level of part-time jobs, a Reuters report recently highlighted the ObamaCare role on the part-time jobs front: "Faltering economic growth at home and abroad and concern that President
In addition, as health insurance costs continue to rise, including with increased regulations and taxes via ObamaCare, it must be noted that business owners with more than 50 workers have every reason to calculate whether it makes sense to continue offering coverage, or drop it and pay the penalty.
For good measure, firms with less than 50 workers now have an added incentive to drop coverage, perhaps provide a far cheaper lump sum payment to workers, and let employees then seek government subsidies and coverage via the insurance exchanges. All of this means more government subsidies, and an ever-growing tab for taxpayers, including, of course, small business owners.
Conclusion
In a time of slow economic growth, lackluster job creation, and troubling trends on entrepreneurship, policymaking should be focused on how to incentivize private-sector risk taking, that is, starting up, expanding and investing in businesses. That would mean, for example, providing broad and substantive tax and regulatory relief.
Unfortunately, policymaking has been pointed in the exact opposite direction for a number of years now. In fact, an assortment of public policy measures - with ObamaCare's mandates, regulations and tax increases being prominent - explicitly raise costs and create uncertainty for entrepreneurs, businesses and investors.
So, at a time when we desperately need the entrepreneurial sector of our economy to be focused on investing and creating good-paying jobs, ObamaCare forces businesses to be focused on how to deal with a massive government intrusion on the employee cost front.
And when doing so, ObamaCare provides clear incentives to hire part-time over full-time workers if possible; reduce employee hours (getting them under the 30-hour mark); maintain staff levels at less than or cut back to below 50 full-time or FTE workers to avoid the employer-mandate; and seriously consider dropping coverage altogether given the relative costs of providing, or not providing coverage.
The recent numbers on hiring and in various surveys confirm that the costs and incentives under ObamaCare push many small and mid-size businesses towards hiring fewer workers, especially fewer full-time workers, and reducing employee hours. In the end, it's clear that ObamaCare serves as a very real drag on economic and employment growth.
n1
n2
n3
n4
n5 Lucia Mutikani, "Analysis: Obamacare, tepid U.S. growth fuel part-time hiring," Reuters,
Read this original document at: http://smbiz.house.gov/UploadedFiles/10-9-2013_Keating_Testimony.pdf
Copyright: | (c) 2010 Federal Information & News Dispatch, Inc. |
Wordcount: | 2775 |
Advisor News
Annuity News
Health/Employee Benefits News
Life Insurance News