Welcome to the strange new world of small-business hiring under ObamaCare. The law requires firms with 50 or more "full-time equivalent workers" to offer health plans to employees who work more than 30 hours a week. (The law says "equivalent" because two 15 hour a week workers equal one full-time worker.) Employers that pass the 50-employee threshold and don't offer insurance face a $2,000 penalty for each uncovered worker beyond 30 employees. So by hiring the 50th worker, the firm pays a penalty on the previous 20 as well.
These employment cliffs are especially perverse economic incentives. Thousands of employers will face a $40,000 penalty if they dare expand and hire a 50th worker. The law is effectively a $2,000 tax on each additional hire after that, so to move to 60 workers costs $60,000.
A 2011 Hudson Institute study estimates that this insurance mandate will cost the franchise industry $6.4 billion and put 3.2 million jobs "at risk." The insurance mandate is so onerous for small firms that Stephen Caldeira, president of the International Franchise Association, predicts that "Many stores will have to cut worker hours out of necessity. It could be the difference between staying in business or going out of business." The franchise association says the average fast-food restaurant has profits of only about $50,000 to $100,000 and a margin of about 3.5%.
Now consider this from Megan McCardle, a thoughtful liberal, over the weekend:
All elites are good at rationalizing their eliteness, whether it's meritocracy or “the divine right of kings.” The problem is the mandarin elite has some good arguments. They really are very bright and hardworking. It’s just that they’re also prone to be conformist, risk averse, obedient, and good at echoing the opinions of authority, because that is what this sort of examination system selects for.
The even greater danger is that they become more and more removed from the people they are supposed to serve. Since I moved to Washington, I have had series of extraordinary conversations with Washington journalists and policy analysts, in which I remark upon some perfectly ordinary facet of working-class, or even business-class life, only to have this revelation met with amazement. I once had it suggested to me by a wonk of my acquaintance that I should write an article about how working-class places I've worked usually had one or two verbally lightning-fast guys who I envied for their ability to generate an endless series of novel and hilarious one-liners to pass the time. I said I'd take it under advisement, but what on earth would one title such an article?
BREAKING: Cable Runners and Construction Workers Can Speak in Complete Sentences, Make Jokes.
Then there was the time I responded to the now-standard lament that graduates of elite schools tend to gravitate to banking and consulting by pointing out that traditional management-rotation programs frequently involve less-than-glamorous stints in line jobs; one of my friends from business school ended up running a call center for a telecoms firm. Another very smart, very wonky person who I deeply respect argued that this was an idiotic misuse of an elite MBA, for both the company and the MBA. Which is just 100 percent wrong. It is not a waste to have a smart, well-educated person in telecoms management. And senior executives at a telecom should have run a call center, or done something very similar: that's where you learn to understand your customers, and the core challenges of your business.
But many of the mandarins have never worked for a business at all, except for a think tank, the government, a media organization, or a school—places that more or less deliberately shield their content producers from the money side of things. There is nothing wrong with any of these places, but culturally and operationally they're very different from pretty much any other sort of institution. I don't myself claim to understand how most businesses work, but having switched from business to media, I'm aware of how different they can be.
In fact, I think that to some extent, the current political wars are a culture war not between social liberals and social conservatives, but between the values of the mandarin system and the values of those who compete in the very different culture of ordinary businesses--ones outside glamour industries like tech or design.
Now let's put 2 and 2 together.
How many of the people who wrote the Affordable Care Act have ever run a small business like a fast-food restaurant, a business that's both labor intensive using low-skilled, fungible workers, and has low margins?
Very, very few, if any.
Not surprisingly, they write legislation that has little, if any, connection to the real world where real businesses have to make real decisions that affect whether real people have real jobs.