The unintended consequences of America's social safety net:
One example of fringe benefit costs is Social Security, the U.S.’s public pension system. Almost all workers have some of their income taxed by the Social Security program. However, the employee actually pays only half of the Social Security tax; the other half is paid by the employer. If a company pays two people to each work 40 hours a week at $125,000 a year then the company owes the government slightly more than $7,300 for each person.
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Moreover, companies experience other cost savings beyond Social Security by hiring one very highly paid person, compared to two people. For skilled workers almost all companies offer health care, dental plans and other benefits like life insurance. Top-of-the-line or Cadillac family medical care plans cost over $27,500 per employee. For every two jobs that are combined the company’s bottom line is boosted by the amount the company would have spent on health, dental, and life insurance plans.
While the above Fast Company article focuses on high-skill high-pay workers, it's basic logic applies through out the workforce. Raise the cost per worker and you reduce the demand for workers. Those who are lucky enough to have a job, especially those on salary, are worked harder because from the company's perspective they're fixed costs. The more you work the lower the per unit cost of whatever you happen to be producing.
The usual suspect in these stories is capitalism. After all if businesses weren't so greedy they wouldn't make people work so hard. That's only part of the story. America is a long way from being a laissez-faire capitalist economy. Instead we have a mixed economy where the Big Government element is becoming dominant. It's been ninety years since Calvin Coolidge sat in the White House and boy does it show.
Take Social Security, an entitlement so sacred that most Tea Party activists won't even criticize it. Because part of the cost is borne by the employer it acts as an employment tax. But how does this make sense? The employer derives no direct benefit from their employee's retirement earnings, earnings that often don't start being paid out until decades after that employee has jumped over to another firm. Social Security is a tax that simultaneously reduces employment AND reduces the quality of life for those who have jobs.
Employer run health plans are another prime example of punishing American workers under the guise of helping them. During the Second World War the federal government allowed employers to deduct health care expenses from income, a privilege not accorded to ordinary private citizens. Over the decades this has created an incredibly lopsided system in which the vast majority of Americans cannot afford individual insurance.
At the time this pernicious quirk was added to the tax code the official rationale was that it allowed American firms, during a period of strict wage and price controls, to compete for workers. Both then and now many have suspected that the real reason was less benign. By herding workers into large private employer plans, and getting them used to third parties covering their health care expenses, it would become politically easier to create a single national plan down the road.
A national health care plan has never really emerged. Instead we've had a series of stop-gap partial socializations in the form of Medicaid, Medicare, Obamacare and the byzantine system of mandates imposed on private insurance. For the 60% of American workers who still get coverage through their employer this seventy year old public policy disaster lowers earnings, increases their work hours and reduces their career mobility. All this is compounded by the double fear millions of Americans face everyday: Of losing both their job and their coverage. This is an unnecessary tragedy unheard of in the rest of the developed world.
As Americans get older the twin dilemma of an unsustainable Social Security system, and a rapidly bankrupting health care system, are provoking calls for more government intervention. Among the favourite remedies of the Left are hiking Social Security contributions for both employees and employers, while at the same compelling private employers to offer more generous health plans. In essence these proposals are calling for a doubling down on the mistakes of the past. Having spent nearly four score years digging a hole for the American people the advocates of Big Government want to keep digging deeper and faster.
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