Illinois is in the midst of a decades long struggle to overcome numerous challenges ranging from corruption, high unemployment, underfunded pensions and high taxes. At a time when the state can’t afford any additional obstacles, recent data provide support to the claim that employers have been cutting employee hours to avoid the costliest aspects of ObamaCare since it was signed into law in 2011.
To examine how the Affordable Care Act, commonly referred to as ObamaCare, is affecting employment in the state, this report examines average hours of labor in three sectors where average hours are closest to 30 hours per week – the threshold under the law for determining full-time employment status.
For employers, the distinction between full- and part-time status under the ObamaCare law is significant. In many cases, employers can avoid costly penalties assosiated with ObamaCare by replacing full-time workers with parttime employees. In addition, employers may also expand the business’ workforce with part-time workers instead of full-time workers. This means workers are seeing reduced hours and lost pay.
The three sectors that fall into both the lowest-paid and lowest work hours categories are: retail trade, food and beverage,
and general merchandise. They comprise about one-fifth of the state’s total employment. Of these three sectors, all three now have average work hours below 30 hours per week.
Based on data from the Illinois Department of Employment Security, the Illinois Policy Institute calculated:
- Retail: The number of lost hours in the retail sector is the labor equivalent of about 36,000 Illinois jobs lost in that sector since 2011.
- Food service: The number of lost hours in the food and beverage sector is the equivalent of 10,000 jobs lost.
- General merchandise: Lost hours in the general merchandise sector is equivalent to 20,000 jobs lost.
- Since 2011, Illinois has lost the equivalent of about 66,000 jobs in these sectors through reduced work hours – more than the number of jobs added in all sectors over the past year.
While many internal and external factors have been contributing to the state’s seemingly intractable unemployment and underemployment, it is difficult to ignore the correlation between the ObamaCare implementation and the state’s current labor trends.
There is no doubt that Illinoisans need affordable health care access. But the public and lawmakers need to know that this approach – trading insurance for work – is wrong for Illinois.
Earlier this year, Illinois Valley Community College, or IVCC, announced that it was limiting all part-time employees to a maximum of 29 hours per week. The reason? The school could otherwise face an ObamaCare penalty of more than $500,000.
Under ObamaCare, large employers must provide “qualified” health insurance coverage that contains a minimum level of benefits and with a premium that does not exceed 9.5 percent of employees’ income. Otherwise, the employer could be subject to a penalty for every employee who works an average of more than 30 hours per week. This penalty is but one example of how ObamaCare is forcing some employers to cut employee jobs and labor hours.
While the White House and ObamaCare advocates claim that examples such as IVCC from across the country are “anecdotal,” the harsh reality is that the law could be further undermining Illinois’ already-fragile employment enviroment.
With the state already facing the second-highest unemployment rate in the nation, Illinois cannot afford to proceed with a policy that threatens to further undermine job stability and prospects for the state’s lowest-skilled and lowest-wage workers.
ObamaCare’s employer mandate
The employer mandate is a provision of ObamaCare that requires employers with 50 or more employees to offer qualified and affordable health insurance coverage to their employees. This provision of the law was supposed to go into effect Jan. 1, 2014, but was delayed for one year by the Obama administration.
“Large employers” – meaning those employers with 50 or more employees – will be the most affected by the costliest provisions of ObamaCare. That’s because they will be facing potentially crippling financial penalties that are determined by whether they offer health insurance coverage, the type of benefits offered and whether the coverage is deemed affordable under ObamaCare.
How the law defines ‘large’ employers
Employers with 50 or more employees qualify as “large.” Under the law, a full-time employee is defined as someone who works 30 hours or more per week.
Full-time equivalents, or FTEs, will also count toward a business’ full-time employee total. Two employees, each working 15 hours per week, will count as one FTE. For example, a business that employs 20 full-time employees (at 30 hours or more per week) and 60 part-time employees (at 15 hours or more per week) will meet the 50 full-time equivalent threshold that constitutes a large employer.
However, an employer is penalized using a formula that is based on the number of full-time employees only, not FTEs. That gives employers an incentive to replace full-time workers with parttime workers, or to grow the business’ workforce through parttime employees.
There are no penalties for hiring additional part-time workers or for employers with 49 or fewer employees. Employers are already taking steps – including cutting hours – to avoid the costliest provisions of the law.
ObamaCare’s effect on employment in Illinois
The employer mandate is bad policy. Even groups that initially supported the law have now voiced serious concerns about ObamaCare, including labor unions such as the Teamsters union. In a letter to Senator Majority Leader Harry Reid and House Minority Leader Nancy Pelosi, Teamsters General President James P. Hoffa and associate labor leaders wrote:
“The law creates an incentive for employers to keep employees’ work hours below 30 hours a week. Numerous employers have begun to cut workers’ hours to avoid this obligation, and many of them are doing so openly. The impact is twofold: fewer hours means less pay while also losing our current health benefits.”
While different groups have opposing visions on how to provide access and affordable coverage, they do agree on one fundamental point: the employer mandate is a job killer.
Average work hours trends
Illinois’ three lowest-paid employment sectors are also the sectors with the lowest average work hours per week. These three sectors account for about one-fifth of the state’s total employment.
In 2011, all Illinois employment sectors had average weekly hours above 30 hours per week, ObamaCare’s threshold for determining full-time or full-time equivalent status for an employee. In 2011, the highest average weekly hours were found in the manufacturing sectors, with the highest in food manufacturing at an average of 41.4 hours per week.
The four sectors with the lowest average weekly hours were retail trade (30.7), food and beverage (31.5), general merchandise (31.5) and other services (31.5). The lowest average hourly earnings, or AHE, sectors were general merchandise ($10.98), food and beverage ($12.24), retail trade ($12.66) and food manufacturing ($15.73).
The three sectors that fall into both the lowest-paid and lowest work hours categories are retail trade, food and beverage, and general merchandise. Of these three sectors, all three now have average work hours below 30 hours per week. (See Figures 1-3.)
It is important to note that, before ObamaCare was enacted, the average work hours remained steady for these sectors, even in the aftermath of the financial crisis. In fact, average work hours increased slightly in two of these sectors between 2008 and 2010. But all three sectors saw dramatic reductions in average work hours after ObamaCare was enacted. (See Figure 4.)
The labor impact
To understand the magnitude of what a 1.8 hour average drop means, consider that there are about 590,000 retail workers in the state today. The lost hours and jobs in retail mean that the work of about 36,000 workers has been lost in this sector since 2011.
Meanwhile, the general merchandise sector currently employs about 126,000. This sector has lost about 5,000 jobs since 2011, but the 3.7 average hours lost correspond to 20,000 workers lost.
Finally, a gain of 13,000 workers in food service, which currently employs about 411,000, is negated by the hours lost. A drop of 1.8 hours per week means that the work of about 10,000 Illinoisans has actually been lost in this sector.
These examples are not anecdotal. They represent lost job opportunities and paychecks for the state’s lowest-wage workers. Since 2011, Illinois has lost the equivalent of about 66,000 jobs in reduced hours – more than the total number of jobs the state has added to the economy in the past year.
The evidence from Illinois shows that employers, particularly those with the lowest-wage and lowest average hours, have been dramatically cutting labor hours since 2011. This trend is highly suggestive and points to employers cutting employees’ hours to avoid ObamaCare’s harshest penalties. This is occurring at a time when the state has already been on a decadeslong trajectory of economic decline.
ObamaCare advocates should be prepared to answer the question: How many lost jobs and lost hours are too many? ObamaCare will not only fail to deliver on the important goals of health care access and affordability – the federal government has already scaled back its original prediction that the law would cover 22 million Americans down to 11 million – but it also threatens to cause further damage to Illinois’ already fragile economy.