2013: Year of the Pink Slip?

2013: Year of the Pink Slip?

As the ball drops to mark New Year's Day, 2013, government-mandated labor costs are going up. Democratic lawmakers in several states are expected to win hefty minimum wage hikes in 2013. And the following year, employers in all 50 states will be clobbered with the largest government mandated labor cost hike in history when the Obama health law's mandate on employers to provide health insurance goes into effect. People with jobs face new risks this year, including being pushed to part-time status, and young job hunters face worsening prospects. There are reasons to worry that 2013 may be the year of the pink slips.

The federal minimum wage is $7.25 an hour. But 18 states and several cities have higher requirements, and 10 states inflation-adjust their minimum wages to reflect the rising cost of living. For example, Florida's minimum wage will go up 12 cents an hour to $7.79 on Jan. 1. That's under current law. Democratic lawmakers in several states are aggressively pushing for legislation to make bigger hikes. Governor Andrew Cuomo and his Democratic allies in New York State have been seeking a 17 percent hike, which would push the minimum to $8.50. Democratic lawmakers in Illinois are also pushing for higher minimum pay. A battle is brewing in California, where Assemblyman Luis Alejo, a Democrat, is championing a multi year hike in the minimum wage to $9.25 an hour by 2016.

Why not pay workers more? Many experts warn that raising the minimum will price low-skilled, young and inexperienced workers out of the marketplace. Businesses can't get enough valuable work out of them to make the higher price worth it. Raising the minimum, it's argued, will mean fewer hires in the short run, and less economic mobility in the long run because unskilled people are blocked from entering the labor force, acquiring skills, and rising up the ladder. David Neumark and William I Wascher, authors of a definitive study of minimum wages around the world, show that raising minimum wage rates impedes the fight against poverty and wage disparity by making it too costly to hire people with minimal skills.

That puts the Obama health law's employer mandate into perspective.

Here's the scoop. Section 1513 of the Obama health law requires employers with 50 or more full-time workers to provide health coverage or pay a penalty. Not just any coverage, but a package of benefits that the Obama administration considers "essential." In most states, the mandate will add an astounding $1.79 every hour to the cost of a full-time employee, and in New York and New Jersey, where health plans cost more, it will add $2.00 every hour according to economist James Sherk of the Heritage Foundation. Even employers who currently offer insurance will face higher labor costs because they lose the leeway to decide what health benefits to offer and how much to ask employees to contribute.

Employers won't balk at providing the mandated plan to a $500,000 a year heart surgeon or lawyer. But if you work as a waitress or sales clerk, you may have to say goodbye to health insurance and just hope your job doesn't disappear. Employers can't offset the new insurance cost by cutting pay for minimum wage workers. There's no place to cut. They're left with two options: don't offer insurance and pay the fine ($2,000 per full-time worker after the first 30), or replace full-time workers with part-time workers to stay below the 50 mark.

McKinsey and Company, management consultants, found that one-third of employers planned to drop health coverage. Even the government's own forecasters predict that fewer people with have on-the-job coverage after the mandate goes into effect than now. Only Washington D.C. could concoct an employer mandate that reduces the number of people with employer-provided coverage and puts more people in line for pink slips.

Betsy McCaughey, Ph.D. is a former Lt. Governor of New York State and author of Decoding the Obama Health Law. Betsy@betsymccaughey.com

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