U.S. companies trim workers’ hours to skirt Obamacare

Imagine you are the owner of a business with more than 50 employees.

You're looking at a looming deadline: Soon, you must provide health insurance for every person on staff who works 30 hours a week or pay a $2,000 fine for each worker left uncovered.

What do you do?

In the United States, where Obamacare is forcing companies to consider that very question, the choice of many managers appears to be to limit workers to 29 hours a week.

The anecdotal evidence is all over the Internet. The Washington Times last week – – wrote about the phenomenon, citing this Reuters story on how Wal-Mart Stores Inc. appears to be hiring mostly part-time workers. The Los Angeles Times has written about the phenomenon. Regal Entertainment Group, which operates more than 500 theatres in 38 states, is rolling back shifts. So too are school boards in Indiana and Pennsylvania.

"It's happening, absolutely," Roy Getz, who runs 11 Raising Cane's chicken franchises in Columbus, Ohio, said earlier this month in a telephone interview when I asked him if restaurant owners really were capping hours to avoid paying health benefits.

It's the kind of perverse outcome that's hard to avoid in policy making.

The Affordable Care Act – or the ACA, President Barack Obama's signature achievement – is a thicket of competing incentives and disincentives created to ensure most Americans have access to private medical insurance.

Mark Duggan , who helped design the ACA as a health care expert on Mr. Obama's Council of Economic Advisers in 2009 and 2010, said in an interview that the administration knew the threshold could give some employers incentive to restrict hours.

But since the goal of the policy was to insure as many Americans as possible, the alternative to a threshold was forcing employers to ensure all part-time workers, said Prof. Duggan, who now is a professor of economics and public policy at the University of Pennsylvania's Wharton business school.

"There are a lot of parts to it," he said. Under the ACA, fines for denying health insurance to full-time workers will begin Jan. 1, 2014.

The coverage of the phenomenon tends to focus on the perversity of the outcome: a law that is supposed to guarantee health coverage is not only failing some, but it's also costing them money. But what if there's an equally perverse side to that outcome? What if Obamacare is contributing to the strengthening of the U.S. labour market?

Joshua Steiner, a managing director at Hedgeye Risk Management, a research firm in New Haven, Conn., can't help but wonder if that's exactly what's happening in industries that are big users of part-time workers, such as hospitality and food service.

There is a group of economists that prefers the weekly jobless claims data to the Labor Department's monthly survey of non-farm payrolls. Mr. Steiner is one of them. In April, he observed a sudden acceleration in the decline of claims. The improvement made little sense: Higher taxes should have been curbing demand, and the federal government's sequestration cuts should have been taking hold. Mr. Steiner developed a hypothesis: Obamacare is driving an increase in part-time employment.

When an employer limits the hours of part-time workers, he or she must find someone else to work those shifts. Mr. Steiner reckons that could help explain the strong improvement in the claims data even as other hiring indicators are stickier. If you pick up some shifts at the local Olive Garden – whose owner, Darden Restaurants Inc., also reportedly is hiring more part-timers because of Obamacare – you aren't filing for unemployment benefits.

Mr. Steiner concedes that it will be very difficult to prove his hypothesis.

The evidence tends to be circumstantial. In his favour, Labor Department data suggests restaurants are hiring more workers than other private employers. Total private employment has increased 2.6 per cent since January 2012, and service providers have boosted payrolls by 2.8 per cent. Employment in the food service industry has increased 4.4 per cent over that period.

Hiring by temp agencies could also be a signal. If companies are trying to keep a lid on full-time workers, they could turn to temporary workers to fill gaps. Indeed, temp jobs have surged 10.5 per cent since January 2012. However, according to Gary Burtless, a former economist at the U.S. Labor Department who now is a senior fellow at the Brookings Institution, employment at temp firms tends to track the business cycle. Mr. Burtless also ran the numbers on the percentage of temporary workers in the U.S. labour force over the past decade or so: 2.41 per cent in 2001, 2.32 per cent in 2006 and 2.36 per cent in May. No big shift.

It's possible that it's too soon to detect a trend in the macro data. Mr. Getz isn't trying to avoid paying health benefits. As a result, he's been able to hire experienced restaurant managers who were facing reduced hours at their previous jobs. Presumably, the workers Mr. Getz poached were replaced. That's net job creation.