My New NBR Blog Post on Unemployment, Health Care, and Regime Uncertainty

Steven Horwitz

You can find it here.

Comments

[Tom Dougherty]

Steve,

In your article you say that if the health care bill becomes law we will be stuck with European levels of unemployment. But wouldn't a bill that raises health care cost be felt more by lowering employee wages or at least reducing the rate of increase in nominal wages? Maybe the first year or two wages might not adjust so quickly and the bill will impact employment, but after a few years firms will be able to adjust to the increased health care costs by adjusting employee wages downward.

[Niko]

@Tom:
It is a cost on top the minimum wage so it will harm the ones it is suppose to help. Since a wage below the minimum wage is illegal, an additional cost will increase unemployment even more by raising the cost of labor.

[Dan]

Tom,

Prices are artificially "sticky" due to minimum wage laws and union wages. Also, deliberate inflationist policy won't alleviate this problem because the cost burden on the employer for health care is not nominal but in %, so inflation will also raise the costs of health care. Also, page 273 of the bill stipulates that any amount pledged for the minimum-health-insurance plan that corresponds to a fall in salary or wage will not be considered a contribution at all. Read this:
http://mises.org/daily/3855

[Tom Dougherty]

An increase in health care costs will, so to speak, raise the bar of the minimum wage and keep low skilled, mainly teenage unemployment high. But the minimum wage impacts a small fraction of total employment and is nearly imperceptible at high levels of aggregation such as total employment or unemployment. My point is that the benefits received by an employee are ultimately paid for by the employee and not the employer. So in the medium run and certainly the long run as employers have time to adjust, an increase in health care costs will not increase the total compensation an employee receives but instead shift one’s compensation away from take-home pay and to health care benefits. At low levels of take-home pay such as those earning a minimum wage this shifting cannot be done, which will result in unemployment, but at higher levels of incomes it can. I would expect the health care bill to ultimately reduce the fraction of one’s take-home pay to total compensation rather than cause a permanent increase in the unemployment rate.

[Niko]

@Tom:
I think you are underestimating the importance of minimum wage. Also don't count on aggregates: one bank executive and 1 thousand workers at Wall Mart make a intresting calculation for some aggregate, but totally irrelevant in real life.

[A Conservative Teacher]

Have you ever looked at the employment-population number? It has plummeted to 58.5% in the last year and should be noted on more often.