Labor Day 2013: How We Reached the Tipping Point Against Full Time Hiring

Michael Bernick
Former California Employment Development Department Director & Milken Institute Fellow

(This is a longer version of an essay that originally appeared in Zocalo Public Square).

Labor Day 2013 brings a landscape of job scarcity that is now well-documented: more and more applicants per job opening, more and more part time jobs and lower wage jobs, fewer and fewer full time jobs with benefits, fewer and fewer adults who are even looking for work.

Much of this job landscape is due to forces of globalization and technology outside the control of policymakers. But much of it is the result of government policies and rhetoric over the past decade. For Labor Day 2013, it is worth considering how we reached the tipping point against full time hiring, and how we might bring back such hiring.

I. The Tipping Point

Scott Hauge has been the owner of Cal Insurance since 1977. He currently has 28 employees in his business, based in San Francisco’s Sunset District. Along with managing Cal Insurance, Scott has been active in small business issues for nearly 30 years. Since 2005, he has been head of Small Business California, which regularly communicates with over 5000 small businesses throughout California.Screen shot 2013-08-30 at 8.03.50 AM

Scott e-mails members on pending state legislation affecting business, such as the proposed state unemployment insurance changes, as well as on impacts of pending state and federal legislation, especially the Affordable Care Act (ACA). He also e-mails members to get their ideas on the economics of small business in California, and ideas for local and state policies.

Recently, Scott sent out an e-mail regarding member hiring plans for 2013-2014, and particularly whether a tipping point had been reached against full time hiring. From throughout the state, small businesses wrote in about the impacts of increased costs of local government  fees, payroll costs,  and most of all of health care costs and expected health care increases under the ACA.

 Mr. Henry Marvin of the Marvin Insurance Agency of Lancaster submitted a lengthy and thoughtful response. Mr. Marvin noted that “the tipping point for clients of mine is 50 employees. If they are under 50 they don’t want to go over this amount and be subject to ACA fines. American Family Leave Act is also at 50 employees. I have some employers at 60 employees that are going to lay off employees to go under the 50 limit.”

“The other tipping point is that employers start to feel that on top of the salary when the employee costs an additional 40% or more that is too much to want to add another employee. If workers compensation, SSI, unemployment, Medicare, health coverage and other costs go over an extra 40% than they really try to figure any other way than hiring another employee. I know I also feel this way. If I can use technology and outsource certain parts of work than to take on more employees, than that is the choice.”

The owner of a Bay Area home health care business wrote about the hiring costs driving home health care providers away from employees and toward independent contractors. The owner  preferred to use employees. But she could not compete with other home care providers that had moved to using independent contractors.

Other business owners wrote about moving away from full time hiring due to the continued uncertainty of tax increases and the constant talk of tax increases. They had learned to make do with fewer workers during the Great Recession. They were reluctant to hire again when faced with higher fees/taxes and limits on their workforce flexibility.

As Mr. Hauge notes,  some payroll costs have gone down in the past decade, most notably workers’ compensation. Hauge points out that workers’ compensation rates in California went up dramatically in the late 1990s through the early 2000s, reaching roughly an average of $6.29 per $100 of payroll in the second half of 2003. Following workers’ comp reforms first under Governor Gray Davis and later under Governor Arnold Schwarzenegger the rates declined to $2.10 per $100 of payroll in 2009,  before creeping upward in the past few years to $2.60 per $100 of payroll in late 2012.

But other costs linked to local business fees and local health care requirements, to federal payroll costs, and to the federal trigger on unemployment insurance, have increased. As importantly, a big part of the hiring decision is the perception of the future. The perception of business owners, small and large, is that government, including  the federal government, will continue to layer on fees and taxes to meet the growing benefits rolls and other government programs.

The national and state payroll numbers would seem to belie a tipping point against hiring. The nation has gained 6.7 million payroll jobs since February 2010, and the state has done even better per capita, gaining over 800,000 payroll jobs.

But  these numbers are highly misleading. For one, as any job seeker today knows, a good number of these jobs are part-time or contingent.   In July 2013, 8.3 million workers were involuntarily working part-time, meaning that they worked less than 35 hours, often less than 20 hours, even though they  sought full time work.

Additionally, as detailed by a recent report from the Kauffman Foundation the pace of job generation following the Great Recession is considerably slower than in previous recessions in the post World War II period, even from the deep recession of 1982-1983. Though various factors are involved in this slow pace of hiring, a main factor is the lack of confidence in the future: employers look at hiring,

The market system gives companies alternatives in responding to increased costs of full time employment.  As fees and requirements have multiplied, companies have responded by moving away from the full time toward part time and contingent work, and independent contracting.

II.  Employers as the Economy’s Philanthropists

In Nickel and Dimed: On (Not) Getting By in America, her book on the low wage workforce, Barbara Ehrenreich describes low wage workers as “the major philanthropists of our society”, writing:

The ‘working poor,’ as they are approvingly termed, are in fact the major philanthropists of our society. They neglect their own children so that the children of others will be cared for; they live in substandard housing so that other homes will be shiny and perfect; they endure privation so that inflation will be low and stock prices high. To be a member of the working poor is to be an anonymous donor, a nameless benefactor, to everyone else.

There is considerable truth in Ehrenreich’s argument, and a variation of  her argument might be applied to businesses today, especially small businesses. To be in business and hire employees is to be responsible for paying these employees, whether money comes in or not. It is to face each day with no guaranteed income. It is to beset by local, state and government entities demanding money to support  their other activities.  Businesspersons, especially small businesspersons, are our  major philanthropists today.

Further, business is the target of politicians looking to gain publicity or favor with targeted groups. One recent example from  San Francisco, is the “family friendly workplace” legislation proposed by  Board of Supervisors President  David Chiu. Supervisor Chiu is gearing up to run for the State Assembly in 2014, in a very liberal Assembly District ,currently represented by  Assemblyman Tom Ammiano.

In June of this year, Chiu seemed to have found a winning issue to promote himself. He introduced a “Family Friendly Workplace Ordinance” to create a new work right for employees, and help families to decide to remain in San Francisco.  Any employee who is a parent or caregiver would  have the new right to request a flexible work schedule—telecommuting, job sharing, working part time or adjusting their start time. An employer could deny the request only if it would create an “undue hardship” for the employer. If an employer denied the request, the worker could take the matter to the Office of Labor Standards Enforcement.

There was some pushback from employer groups.  These groups pointed out that the Ordinance would not conceivably address the main reasons that families leave San Francisco—especially as the Ordinance targeted workers working in San Francisco, not living in San Francisco. Further, most employers now make work schedule allowances for employees, especially for employees valued for their contributions.  As work flexibility is turned into a “right” confirming legal status, the employer is faced with new layers of legal confrontations and costs, and in fact less likely to be flexible.

But on the whole, Chiu seem to achieve exactly what he sought. He appeared on the Bay Area television evening news shows. He was almost uniformly praised by the local media.  He achieved notice in the national media.

III. Labor Day 2013: Reversing the Tide

It often seems that there is little an average person or small business can do to combat fees or government dictates, but this is not correct. In fact, the Chiu legislation is an example of small businesses fighting back and succeeding. Individual small businesses , including hardware store owner Stephen Cornell and Deborah Loeb of advertising agency Brainchild Creative, made public the inconsistencies and emptiness of Chiu’s legislation. San Francisco Chronicle business columnist Andrew S. Ross weighed in with a critical look, departing from the local media cheerleading. Within six weeks, Chiu had reversed course and greatly watered down the Ordinance.

Reversing the tide of government mandates and fees on employees  is only one of several job strategies to rebuild the employment structure in California and the United States. But is an essential strategy. Without it the other needed strategies (in infrastructure, in education, even in a targeted government jobs program) will have minimal impact.

Which brings us back to Scott Hauge and Small Business California. Hauge and the organization do not automatically oppose increased employee costs. In recent years, they have supported state minimum wage hikes and recent workers’ comp amendments increasing the permanent partial disability payment levels. But they are able to see the costs not in isolation, as usually addressed by elected officials, but in ongoing cumulative impacts against hiring.  On the recent workers’ comp amendments, they were able to find common ground with the labor unions..

One area of common ground we can find on Labor Day 2013 is that we cannot continue to keep doing what we’re doing in regards to employment, and expect employment to return to the structure of previous decades. We’ve entered a New Normal in employment in California and the nation. Even our most fiery business and labor leaders can agree on this.

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