Wednesday, March 11, 2009

Health Care Costs for Employers: Amity Shlaes v. Greg Mankiw

Steve Benen has a little fun with the latest nonsense from Amity Shlaes:

I'm a big science-fiction fan, so when I heard that conservative writer and FDR critic Amity Shlaes had compared contemporary politics to "The Matrix," I was anxious to see what she'd come up with.

But it was this claim that caught my eye:

Take one of the biggest problems in the U.S. economy today: jobs. Long before “subprime” or “cram down” became routine components of our language, we understood that employers need incentives to create new jobs to replace ones that are disappearing. We knew too that health-care costs are a growing deterrent to hiring or rehiring. Between 1996 and 2005 health care costs for employers rose by 34 percent relative to payrolls.

Didn’t Greg Mankiw and Doug Elmendorf suggest that this cost is fully passed onto workers in the form of lower wages? While I suggested that this may be an extreme assumption as to the lack of elasticity of the labor supply curve (see this post), Shlaes is arguing that none of these costs are passed onto workers in the form of lower wages. Maybe she should have read her own source:

Most economists believe that health insurance premium costs are ultimately passed back to employees in the form of reduced wages, so long-run compensation costs for employers are not affected by rising health care prices.


TheTrucker said...

What makes health care more affordable is the economies that can be had from large scale integration of those parts that do not demand "the personal touch". This is true for ALL record keeping and accounting. But it is also true of risk management in that the larger the pool the lower the individual risk.

Many will take the position that systemic risk is magnified in large economies of scale. That is a fact, yet the trade off when systems are managed by a true representative government seem to result in a very large net gain.

American firms will actually lose profitability if health insurance is taken from their greedy grimy clutches. At present people are working 45-60 (or even 70) hour weeks for the base pay that is supposed to be compensation for a 40 hour week. They do these extra hours for the same pay because they fear losing health care coverage as they lose their jobs.

Seems to me that the base solutions to maintaining American life quality are alternative energy and import tariffs. (freedom from trade). And the only way to then improve quality of life in the USA is to take the health insurance hammer out of the clutches of the firms and the unions and manage the system with a representative government. I realize that this is like saying that if we had some ham, we could have some ham and eggs,,,, if we had some eggs. Nonetheless.....

Anonymous said...

Not sure this is true. Some companies will give employees a bonus not to take the health insurance offered. Why would they do that if they believed providing the health insurance made them money?

Jack said...

"....we understood that employers need incentives to create new jobs to replace ones that are disappearing."

First thought. As Tonto said to the Lone Ranger when sorrounded by angry native Americans, "What you mean "we" paleface?"

Otherwise, as a card carrying free market capitalist, why would I be expecting incentives beyond the likelihood of plrofits inn order to build a business and hire employees? I get nervous when so-called conservative, media stars begin to use the word incentive to business. That usually ends up meaning some form of government intervention, like cutting my fair share of the tax burden. Or getting some kind of government guaranteed cost control, etc. That's not free market capitalism.
As it should be. Amity, please keep the government out of the calculation. We genuine conservatives know that we can do business and make a profit without government incentives.

Anonymous said...

Is not most of labor economics micro?

Employers "provide" medical insurance in response to the supply and demand characteristics for the market/kind of workers they need in the business they do. If I need an employee to do a certain job and the job is done elsewhere, then I will provide the insurance, and determine the compensation scheme as a recruiting and retention tool.

I am a retired federal civil servant when I double dipped (revolving door) with a private firm doing business with the US G I declined health insurance, I had it from the annuity. In the instance where the contract allowed my employer to charge the same against benefits/overhead for paying me his share of the premium I was so compensated. I moved around and another contractor did not have that overhead scheme and I was given a pat on the back for them not adding me to their policy.

It is all how the employe views the need for health insurance.

An employee who has no assets does not need to bet any one that he will get sick and win if the insurance protects the assests.

It is all about whose assets get covered!!

However, medicare, terminal medical costs are the hugest asset dillution risk, is a wonderful thing for the kids' inheritance.

Small wonder "they" want to imply SS is bankrupt so that it keeps medicare solvent.