Is Obamacare Responsible for the Surge in Part-Time Jobs? What About Obama's Defense Layoff Suspensions?

Following the surprise drop in the unemployment rate last Friday, I have seen many conspiracy charges leveled against the BLS.

I do not believe any of the conspiracy charges. Had Obama instructed the BLS to juice the numbers, someone in the BLS would surely be yapping. They are not all Democrats. Many were hired under President Bush.

Is Obamacare Responsible for Surge in Part-Time Jobs?

Some stated the 582,000 surge in part-time workers was a seasonal thing based on teachers going back to work. I do not buy that explanation either because the surge in part-time workers and the decline in the unemployment rate were seasonally adjusted.

One likely explanation is an outlier and the data will be revised lower soon enough (or the previous month's of weakness up). There is a second possible explanation although the timing as to precisely when it would matter is uncertain.

Please consider Staffing Companies: How to Profit from Obamacare’s Job Outsourcing.

Obamacare is so huge and transformative, its effects will be felt far beyond just the healthcare sector; its tentacles of government control and penal taxes will permeate and affect the entire U.S. economy.

According to the Heritage Foundation – a Washington think tank – Obamacare’s employer mandate will increase the cost of employing a single minimum-wage employee by $3,588 per year. The employer burden is even greater for minimum-wage employees with a family; in that case, the extra cost will be $11,026 per year.

You might think that one way around this problem would be for employers to offer unskilled workers cheaper health insurance with higher deductibles. Think again. Obamacare has a non-discrimination provision that says that if an employer offers health insurance, all full-time employees must be offered the same “minimum essential benefits” and at a cost that is no higher than 9.5% of the employee’s household income.  Bottom line: there is no escape for employers of full-time workers.

The only solution is for employers to eliminate full-time employment positions for unskilled workers earning near minimum wage. Since businesses need unskilled workers for certain functions, employers will only offer temporary and part-time positions to these poor workers because temporary and part-time jobs are exempted from Obamacare’s employer mandate provisions.

Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor and now a Senior Fellow at the Manhattan Institute, came to a similar conclusion:

If an employer offers insurance, but an employee qualifies for subsidies under the new health care exchanges because the insurance premium exceeds 9.5 percent of his income, his employer must pay $3,000 per worker. This combination of penalties gives businesses a powerful incentive to downsize, replace full-time employees with part-timers, and contract out work to other firms or individuals.

Businesses can reduce costs by hiring part-time workers instead of full-time workers. A firm with 85,000 full-time work­ers and 7,000 part-time workers that does not offer health insurance would pay a tax of $170 million. By keeping the number of hours worked the same, and gradually reducing full-time workers and increasing part-time workers, until the firm reaches 17,000 full-time workers and 92,000 part-time workers, the tax is reduced to $34 million. If the firm abandons full-time workers altogether, admittedly an unlikely option, but useful for illustration, the tax is reduced to zero.

What About Obama's Defense Layoff Suspensions?

Diana Furchtgott-Roth writing for Real Clear Markets notes Obama Asks Big Business to Break the Law.

The White House has initiated an effort, possibly extra-legal, to head off required layoff notices to employees of defense contractors on the cusp of Election Day. Worse, without congressional approval, it has offered to pay firms' penalties and court costs, potentially $500 million or more, out of the Pentagon budget.

Layoff notices are required by November 1, according to the 1988 Workers Adjustment and Notification Act (WARN),because deep cuts in military spending, known as sequestration, are currently scheduled to take effect on January 1. If cuts occur, they will lead to mass layoffs.

The Obama administration is concerned that layoff notices could cost the Obama-Biden ticket votes, especially in Ohio and Virginia, swing states with a strong defense presence.

It is the first time in history that the White House has asked firms not to file layoff notices.

In a memorandum dated September 28, the White House Office of Management and Budget counseled defense employers not to issue layoff notices on November 1.

OMB assured employers that if they did not send out layoff notices and layoffs occurred, the "contracting agency," namely the Pentagon, would absorb the penalties and attorneys' fees the employers would have to pay, a significant cost to taxpayers.

If firms don't file WARN notices and plant closings or layoffs of more than 500 workers occur, employers are liable for penalties of 60 days back pay and benefits paid to workers.

No problem, says OMB in the memo, the contracting agency will pay the costs. It specified that if sequestration occurs and the contractor has followed Labor Department guidelines, "any resulting employee compensation costs for WARN Act liability as determined by a court, as well as attorneys' fees and other litigation costs (irrespective of litigation outcome), would qualify as allowable costs and be covered by the contracting agency, if reasonable and allowable."

It's not clear that the White House has the authority to offer to pay the costs.

Nevertheless, defense companies, such as Lockheed Martin and Boeing, which were planning to send out notices to tens of thousands of workers, have announced that they will refrain.

Blatant Manipulation

This is clear manipulation by president Obama. That said, it would not affect the unemployment rate now. Nor is it a conspiracy.

However, it was a cowardly act, one that certainly cannot inspire confidence in the president at all.

For more on the jobs situation, participation rate, and controversy regarding the surprising drop in the unemployment rate, please see ...

• About That "Expected" Drop In Participation Rate
 
• Lost Bet
 
• "Unbelievable Numbers" Says Former GE CEO Jack Welch; Another Look at Jobs Including Government Jobs and Self-Employment
 
• September Jobs +114,000; Unemployment Rate 7.8%; Part-Time Workers +582,000; Initial Reaction and Election Impact

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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