OBAMASCARE AUGUST 20, 2013
A new Obamacare story is making the rounds, although it’s difficult to know what, exactly, it tells us. It involves Forever 21, the fashion retailer with more than 450 stores worldwide. In an internal memo, since leaked and posted on Facebook, a company official announced last week that Forever 21 was transforming some of its full-time, non-management positions into part-time ones. Starting in August, the company said, people in these jobs now (stock maintenance associates, cashiers, to name a few) would be able to work no more than 29.5 hours a week.
That number is what has everybody’s attention. Obamacare includes a so-called employer mandate—a requirement that businesses pay a financial penalty if they don’t provide health insurance to all full-time workers. And the law defines anybody working more than 30 hours as full-time. The provision has always been unpopular, even with some of the law’s supporters. Earlier this summer, the administration announced that it was effectively delaying enforcement of the mandate for one year, so that companies would have extra time to prepare for the regulation’s complicated reporting requirements. The fear is that Forever 21 went ahead and limited employee hours anyway.
Forever 21 officials have said that Obamacare was not the impetus for its decision—that they were making a routine staffing decision, in order to better manage their labor costs. But you don’t have to be an Obamacare hater to wonder if that’s entirely true, particularly since other, similar stories have been showing up in the press recently. A week ago, NBC News interviewed 20 employers from across the country, including some fast food franchise owners and public universities, who were said they might reduce—or had already reduced—some employee hours in order to avoid the 30-hour requirement.
Meanwhile, Jed Graham, a writer for Investor’s Business Daily who has been following this issue closely, recently broke down data on household income and found substantial declines in hours worked across four occupations—retail bakery, home centers, general merchandise, and home health services. "Anybody who insists Obamacare employer penalties aren’t having a meaningful impact on work hours simply hasn’t looked at the evidence," Graham wrote. Christopher Conover, an American Enterprise Institute researcher, has made a similar case in Forbes.
It all sounds pretty damning. But is it really?
Gary Burtless, a well respected labor economist from the Brookings Institution, doesn't think so. Burtless says that he is skeptical the mandate would have a large effect on staffing decisions, particularly when the financial penalty doesn’t even start for more than a year. "If employers have found that their current hours arrangements are suitable and profitable," Burtless says, "why should they shift to a less suitable or profitable hours schedule in anticipation of penalties that will not go into effect until January 2015?" In addition, he notes, reducing hours has plenty of downsides for the employers, too—like paying unemployment taxes for each additional worker. "The UI tax is only imposed on wages up to a fixed limit per worker, and in a number of states this limit is just $7,000," Burtless notes. "An employer will pay twice as much UI tax on two workers who earn $7,000 per year as it does for one worker who earns $14,000."
Mostly, though, experts like Burtless are looking at more data—including aggregate data about the workforce—and they're not seeing a shift towards reduced hours. "If the ACA’s employer mandate were distorting hiring practices in the way critics claim, we’d expect the share of involuntary part-timers to be growing," Jared Bernstein and Paul Van de Water, from the Center on Budget and Policy Priorities, wrote recently in Politico. "Instead, it is down about one percentage point off of its peak." Burtless agrees, noting also that data on part-time and full-time hiring within specific fields tends to be very volatile. "I'm sorry," Burtless says, "but this does not appear to me to be much of a story—overall."
Evan Soltas is just as skeptical. Writing in Bloomberg earlier this month, Soltas argued that both Conover and Graham had relied on data ill-suited for their analysis, producing results that were "indistinguishable from [statistical] noise." Soltas did some work of his own—and drew heavily on the Bureau of Labor Statistics' "establishment survey," which has a much larger sample size. "There’s no substantial evidence yet that employers are switching from full-time to part-time in response to health-care law," Soltas concluded. Helene Jorgensen and Dean Baker, from the Center for Economic Policy and Research, came away with the same impression after their own analysis. "Employers do not appear to be changing hours in large numbers in response to the sanctions in the ACA," they worte.
What explains this apparent divergence of opinion? One possibility is that the phenomenon is both real and tiny. Officials at Forever 21, for example, say the change at their company will affect 196 employees, or less than 1 percent of its U.S. workforce. As Kevin Drum frequently notes, this is a big country: Even a relatively small portion of the population represents a decent-sized number of people.
That doesn't mean such workers would be happy about the change—even though many would be getting decent health insurance for the first time—or that policymakers would be powerless to do something for them. Truth is, economists and health policy experts have never liked the employer mandate, precisely because of its potential to skew hiring and staffing decisions. Even some Obamacare supporters have argued that, instead of postponing the requirement, President Obama and Congress should modify or repeal it permanently—and find some other way to produce the $130 billion in revenue the Congressional Budget Office projects that penalty payments will generate over the next ten years.
If this trend turns out to be widespread, the case for such an adjustment would be stronger. But that's still a very big "if."
Jonathan Cohn is a senior editor at the New Republic. Follow him on twitter @CitizenCohn
Update: I added the references to the Soltas column, and the Jorgensen-Baker analysis, after initial publication. Rex Nutting of MarketWatch has also written on this—and has a really cool graph to go with it. It's worth checking out.