Evading Prosperity

posted at 12:43 am on March 10, 2010 by Doctor Zero
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Freedom of choice is an essential ingredient of prosperity. Money is valuable because of the many ways you can spend it. The growth of government degrades the economy by reducing this valuable freedom. A recent development in the endless health-care saga illustrates another way Big Government weakens the economy: the high cost of evading its worst excesses.

The Associated Press describes a new provision in the health-care bill that will require businesses to count both full and part-time workers when calculating penalties to provide government-mandated health insurance. The original Senate bill only counted full-time workers when assessing penalties, but as the AP puts it, “Democrats feared that businesses would avoid penalties by hiring more part-time workers. But business groups oppose the change as overly burdensome.”

Business managers naturally seek ways to avoid “overly burdensome” costs. They evaluate regulations and mandates by comparing the costs of compliance and evasion. There are always ways to evade the grasp of Big Government… including going out of business. When the cost of compliance is reasonable, evasion becomes less attractive.

A long-standing example of this principle is the Laffer Curve, which demonstrates that rising tax rates eventually reduce income to the treasury, in part because businesses and individuals will dramatically modify their behavior to avoid the higher rates. Behavior which reduces tax exposure is, almost by definition, less economically productive. A wad of undeclared income stuffed in your mattress suffers no taxes… and generates no value through investment, interest, or trade.

As Ed Morrissey pointed out, the original Senate version of this health-care mandate would have encouraged businesses to evade it by reducing full-time staff and hiring more part-time employees. The revised version would have the opposite effect, virtually annihilating part-time employment by making it dramatically more expensive. Employers would have no choice but to provide expensive health-care benefits to their part-time staff, pay stiff penalties… or dodge this swinging pendulum of financial ruin by getting rid of part-timers altogether.

Businesses employ part-time labor to gain flexibility in covering their schedules. If the cost of such labor is greatly increased, they will find ways to do without it. You have no idea how much your life will change, if the tectonic plates of the labor market shift so violently. Many of the services and conveniences you take for granted will disappear. If you think the service and food quality at some restaurants are poor now, wait until the owners eliminate the part-time positions that allow them to beef up their staff for lunch and dinner rushes. We could find ourselves looking back on late-night drive-thrus and pizza delivery as fond memories from a bygone era. The retail sales industry is already reeling from online competition and steep operating costs. Many stores would find it impossible to continue their business model without part-time labor.

This would be annoying to the consumers of those services… and utterly devastating to their owners and employees. It would produce a disastrous ripple effect throughout an already shaky economy with high unemployment. Industries that don’t even rely on part-time labor would be impacted by the collapse of those which do. A lot of truckers are employed hauling food and merchandise to those restaurants and retail outlets.

The level of cost imposed through government mandate sets the level of evasion which becomes first reasonable, and eventually inevitable. The often-reviled practice of outsourcing jobs to other countries did not begin because American businessmen couldn’t wait to put domestic workers on the unemployment lines. Managers don’t want to rely on faraway employees they can’t supervise or control. The technical support industry is keenly aware that its customers don’t like dealing with foreign representatives. Other industries appreciate that being able to advertise their exclusive employment of American workers would provide them with an advantage,. They outsource because the cost of using domestic labor - due in large measure to mandates, regulation, and union interference - is so high that all of the other considerations become secondary. More jobs will fly overseas if the Democrats drop new bricks on the scales of labor cost. If laws are passed to prevent this, businesses will find ways to evade them, and the economy will suffer some more.

Part-time positions are often entry-level, so increasing their cost will hit the most vulnerable sectors of the workforce, including young people… especially those from blighted urban areas that desperately need businesses to form, and take a chance hiring unskilled labor. I suspect the final version of the constantly mutating ObamaCare program would include regulations designed to make it more difficult to fire people – to prevent evil businesses from slashing their workforce ahead of the mandate avalanche. That will only make them even less likely to hire the young and marginal employees who often use part-time work as the first step on the journey to full-time positions.

The cost of evasion is one of the most difficult factors for statists to calculate, because they always underestimate their targets’ ingenuity at devising extreme methods to avoid compliance… and their willingness to use them. These methods invariably injure the economy, because they force the private sector to do things it didn’t want to do. Businesses want to grow, expand, and diversify. They will reluctantly compromise these ambitions, to avoid outrageous interference from a government that views them with incomprehension and hostility.

Successful businessmen are usually quite good at anticipating future trends, and will begin the process of evasion early enough to avoid the jaws of hungry legislation. Today, they read the latest in a long string of stories about how the Obama Administration is working feverishly to increase their costs, and regulate their activities. I’m sure tomorrow’s bad employment news will be as “unexpected” as all the previous disasters have been.

Cross-posted at www.doczero.org.

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