How Mandatory Employment Benefits Hurt the Poor and Middle ClassBy Capitalist in Chief
Mandatory employment benefits are government or union required extras an employer must pay in order to keep an employee. Those include minimum wage, payroll taxes, vacation time, family leave, insurance, severance, etc.
The typical socialist narrative is that we must protect the rights of the employee at the expense of the profits of the evil, greedy business owners. However, what they don’t tell you is that employee benefits not only come at the expense of business profits, but also come out of the pockets of poor and middle class people, who are victimized by the very same benefits that are supposedly designed to help them. And here is how:
No business in its right mind will ever hire an employee whose total cost of employment exceeded that employee’s contribution to the business, and by total cost I mean salary, benefits, use of equipment, etc. (If you don’t believe that, then I have a few ten dollar bills I’d like you to buy for $20 each.) So if the total cost of employment goes up due to an increase in mandated benefits, some employees who were beneficial to a business prior to the increase are no longer useful. Consequently businesses will:
- Fire employees who no longer meet the new threshold.
- Not hire employees who don’t meet the new threshold.
Both lead to higher unemployment, especially among workers seeking entry level jobs.
Minimum wage laws for example, prevent unskilled workers form offering their services for less money while they train on the job and acquire better, higher wage commanding skills. They also block people who do not need a “living wage”, such as teenagers, from gaining easy employment.
Minimum wage, and other mandated benefits form a barrier of entry to the work force.
The following is an excerpt from a Heritage Foundation lecture by Helle C. Dale on November 28, 2005:
Let’s compare the EU with the United States. Total employment in the EU stands at 63 percent. In the U.S. it is 75 percent as measured by 15–64-year-old members of households. Where the United States has 5 percent unemployment, France has 10 percent and Germany has 11 percent. Between 1990 and 2003, the U.S. economy created almost 20 million new jobs. Italy, Germany, and France combined created 3 million. If current trends continue, per capita income will go up in Germany over the next 20 years by 44 percent, while it will double in the United States.
The less regulated U.S. labor market is far better at integrating the workforce at the lower end of the scale, providing economic opportunity and upward mobility that particularly affects immigrants, young people out of high school or college, and women. Immigrants, for instance have about the same unemployment rate in the U.S. as the general population, whereas in Germany and France the unemployment rate for immigrants stands at 25 percent.
And more recently, on May 7, 2009, in a Wall Street Journal article, Marcus Walker and Roger Thurow write about unemployment in the US vs. Europe during the 2008-09 recession:
The differing U.S. and European approaches toward worker protections can influence recovery prospects. Unemployment is similarly high, above 8% and rising, both in the U.S. and among the 16 European countries that use the euro currency. But Europe’s high payroll taxes, along with restrictions on when and how companies can lay off workers, make employers slower to rehire when a recession ends.
That’s one reason why economists expect the U.S. to stabilize faster than Europe. Last month the International Monetary Fund predicted that the euro-zone economy will keep shrinking next year, whereas the U.S. should bottom out by then.
But mustn’t we have minimum wage and mandatory benefits to protect workers from those evil, inconsiderate business owners? Let me answer with another question: What’s the point of protecting some workers while consequently victimizing others, and at the same time also slowing the economy by rising business costs and creating unemployment?