Mandated Employee Benefits

Mandated Benefits

• Government intervention aims to provide workers with benefits.
• Methods include the government taxing employers to provide worker benefits.
• Taxes may fund unemployment insurance or the government mandating benefits.
• Mandated benefits can include worker's compensation or health insurance, a key part of the Affordable Care Act.

Mandated Benefits Analysis

• Taxes lead to deadweight loss
• Mandating a benefit costing employers "C" affects the demand curve, and the supply curve.
• It raises the question of how much employees value the mandated benefit.
• Health insurance may be valued more than "C" if employers secure better rates than individuals,

Cost and Value Implications

• If the value of the benefit equals its cost, it is valued as much as it costs
• The benefit might be substandard, or employees might not value it, resulting in a value lower than its cost

Practice Problem

• The labor supply curve is w = 10 + 1.2E in a labor market, which corresponds with the hourly wage rate, w
• The labor demand curve is w = 50 – 0.8E, E equals the number of employee hours
• Government mandates an $8 benefit valued at $8 by employees
• This example can be altered to test with labor that is valued at $6 or $10

Mandated Benefits versus Taxes

• The alternative to a mandated benefit is providing through taxes is imposing a tax of C.
• Taxes always decrease employment, and the cost of the benefit is split unless LS or LD are vertical.
• Mandated benefits may reduce employment less, can even increase employment.
• Deadweight loss is usually less with mandated benefits.

Mandated Benefits and the Supply Curve

• Mandated benefits increase S because employees valued the benefits
• Taxes don't show a shift in S because of implicit assumption, there is no need to shift S
• Some benefits must be tied to employment, such as "paid vacation leave" and "paid maternity leave."

Payroll Taxes, Subsidies, and Mandated Benefits Model

• Payroll taxes and subsidies can be modeled by shifting a supply or demand curve vertically, which is a y-intercept change.

Affordable Care Act (ACA)

• The goal of the ACA or "Obamacare" is to make healthcare more accessile
• Firms with over 50 full-time employees provide "affordable" health insurance to those working 30hours or more, or pay a penalty
• Individuals have health insurance or pay a penalty unless they face significant "financial hardships."
• Individuals with incomes between 100% and 400% of the poverty line receive subsidies when purchasing health insurance through an exchange.
• Medicaid expansion provides government health insurance to families.
• Signed into law in 2010, most provisions took effect in January 2014.

ACA Concerns

• It was intended to increase employer-sponsored health coverage, and overall working conditions and compensation.
• There were concerns that it could inhibit employment expansion at 50 employees, and incentivize firms to reduce full-time hiring as opposed to part-time employment.
• A 2013 letter from union leaders said that the ACA would shatter hard-earned health benefits and the foundation.

Dillender, Heinrich, & Houseman (DDH) (2022) Paper

• It aims to estimate how the ACA affected part-time employment
• This is difficult to study, since the mandate was implemented country-wide at the same time.
• It highlights Dillender, Heinrich, & Houseman’s strategy.
• The approach exploits Hawaii since it has a more stringent employer health insurance mandate since 1974.
• Hawaii is used as a control group by comparing part-time employment between it and other states.

DDH (2022) Data and Regression

• Used data from the Current Population Survey (CPS).
• 𝑃𝑎𝑟𝑡𝑇𝑖𝑚𝑒𝑖𝑠𝑡 = 𝛼1 𝑃𝑜𝑠𝑡𝐴𝐶𝐴𝑡 + 𝛼2 𝑁𝑜𝑡𝐻𝐼𝑠 + 𝛽𝑃𝑜𝑠𝑡𝐴𝐶𝐴𝑡 ∗ 𝑁𝑜𝑡𝐻𝐼𝑠

Values and Equations

• 𝛼1 is the difference in part-time work before and after the ACA.
• 𝛼2 is the difference in part-time work in HI and other states.
• 𝛽 is the DID estimate.
• It estimates the change in part-time work in states outside HI versus the change in HI.
• The study focuses on retail, accommodation, and food service since they employ low-wage and part-time employees.

Descriptive Evidence (ACA)

• Before the ACA in 2010, part-time employment in RAF industries trended similarly in Hawaii and other states
• After 2010, part-time employment starts to fall in HI as the recession ends.
• Simultaneously, it stays elevated in other states

ACA Results

• It increased part-time employment in RAF industries by 1.8-3.0 percentage points.
• It had very little effect on part-time employment in non-RAF industries.
• It increased part-time employment overall by 2.7-4.8 percentage points.

Interpretation and Limitations

• 17-24% of at-risk RAF workers may have involuntarily become employed part-time
• 500,000-700,000 workers, also known as 0.4-0.5% of LF.
• Limitations include lots of confusion over the ACA, and the economy was recovering from the Great Recession
• These could affect the difference between long and short-term effects.

Immigration

• It brings up the thoughts of the expected economic impacts
• After 1965, the United States saw major resurgence in immigration.
• During the 1950s, around 250,000 immigrants entered the country.
• After 2000, over 1 million illegal and legal immigrants arrive annually.
• Statistics show that 3.1% of the population lives in a country they were not originally born in.

Labor Market Impacts of Immigration

• How immigration may affect the labor market for "native born" employees
• A concern is whether immigrants cause displacement
• Conversely, a concern is whether they complement the role

Immigration as Perfect Substitutes

• Native workers and immigrants may become perfect substitutes
• Immigration helps with capital
• Immigration initially shifts the supply curve outward.
• Over time, capital expands as firms take advantage of the cheaper workforce

Native Worker Response

• Cross-city studies found little evidence of an adverse impact of immigration on earnings of native workers

Economic Benefits of Immigration

• Immigration may bring negative impacts to workers whose skills are similar to those of immigrants
• Immigration leads to increases in national income

Positive Impacts of Immigration

• It increases national income with increased economic growth
• Firms are producing more, and face a tradeoff similar to poverty programs

Chapter 4 Summary

• With competitive labor, there is no unemployment in the labor market.
• Workers who wish to work are able to find means to get jobs at the wage
• Fractions of the payroll taxes transfers from firms to workers with higher fraction
• Payroll taxes have the same impact on employees regardless of how it is levied