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Employment Costs are Higher Than They Appear

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yglesias_matthew_bioTo wax a bit conservative for a moment, while this Felix Salmon / Pedro da Costa thought experiment is fun, it’s simply not the case that “With $2 billion, you could employ 40,000 people for a full year at $50,000 each.” You’d have to pay Social Security tax, Unemployment Insurance, etc. Plus you’d probably have to carry all kinds of liability coverage. Depending on where you’re located there’s be other state/local stuff to deal with.

Then to wax back progressive again comes the big whopper: Health care. There’s a huge health insurance shaped wedge between what you think you make and what your employer thinks he’s paying you. To provide health insurance coverage to 40,000 people costs a lot more than $0. Ironically, if you were talking about paying your employees, less this wouldn’t necessarily be a problem as they’d be eligible for Medicaid. You’d be creating quintessential low-wage “bad jobs,” but you’d at least be creating a lot of them. But once you have the kind of workforce needs where you want to offer a decent wage, you’re either going to be restricting your pool to people who can get insurance through their spouse or else you have to tack a large extra employment cost onto the bill. What’s more, you’re bearing a weird kind of risk since if over time the cost of the insurance plan increases faster than your firm’s revenue and that causes you to make the plan less generous to your employees they’re going to view that as a mean cut in benefits that you initiated.

America got derailed from a long-term growth conversation by a financial crisis and a recession. Then we got derailed from a short-term jobs conversation by a ginned-up budget crisis. People in the know recognize that the health costs piece is critical to the budget issue, but the reality is that health care is critical to the long-term fate of the federal budget primarily because it’s critical to the long-term fate of the economy as a whole.

This post originally appeared on Think Progress on September 15, 2011. Reprinted with permission.

About the Author: Matthew Yglesias is a Fellow at the Center for American Progress Action Fund. He holds a BA in Philosophy from Harvard University. His first book, Heads in the Sand, was published in May 2008 by Wiley. Matt has previously worked as an Associate Editor at The Atlantic, a Staff Writer at The American Prospect, and an Associate Editor at Talking Points Memo. His writing has appeared in The New York Times, the Guardian, Slate, The Washington Monthly, and other publications. Matthew has appeared on Fox News and MSNBC, and been a guest on many radio shows.


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