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Thoughts from the Frontline

A Lost Generation

July 27, 2013

It is pretty well established that a tax increase, especially an income tax increase, will have an immediate negative effect on the economy, with a multiplier of between 1 and 3 depending upon whose research you accept. As far as I am aware, no peer-reviewed study exists that concludes there will be no negative effects. The US economy is soft; employment growth is weak – and yet we are about to see a significant middle-class tax increase, albeit a stealth one, passed by the current administration. I will acknowledge that dealing a blow to the economy was not the actual plan, but that is what is happening in the real world where you and I live. This week we will briefly look at why weak consumer spending is going to become an even greater problem in the coming years, and we will continue to look at some disturbing trends in employment.

Last week, I noted at the beginning of the letter that an unintended consequence of Obamacare is a rather dramatic rise in the number of temporary versus full-time jobs. This trend results from employers having to pay for the health insurance of employees who work more than 29 hours a week.

I quoted Mort Zuckerman, who wrote in the Wall Street Journal:

The jobless nature of the recovery is particularly unsettling. In June, the government's Household Survey reported that since the start of the year, the number of people with jobs increased by 753,000 – but there are jobs and then there are "jobs." No fewer than 557,000 of these positions were only part-time. The June survey reported that in June full-time jobs declined by 240,000, while part-time jobs soared 360,000 and have now reached an all-time high of 28,059,000 – three million more part-time positions than when the recession began at the end of 2007.

That's just for starters. The survey includes part-time workers who want full-time work but can't get it, as well as those who want to work but have stopped looking. That puts the real unemployment rate for June at 14.3%, up from 13.8% in May.

As it turns out, the unintended consequences of Obamacare are not the only problem. Charles Gave wrote a withering indictment of quantitative easing this week (which we will look at in a few pages) and included the following chart, which caught my eye. Note that the relative increase in part-time jobs began prior to Obama's even assuming office. The redefinition of part-time as less than 29 hours a week and the new costs associated with full-time employment due to Obamacare simply accelerated a trend already set into motion.

An Ugly Secular Trend in Part-Time Work

Look closely at this graph. It turns out the trend toward part-time employment started in the recession of the early 2000s, paused only briefly, and then really took off in the recent Great Recession. This is clearly a secular trend that was in place well before 2008.

This development is very troubling, especially because it…

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Don Braswell

Aug. 25, 2013, 11:27 a.m.

John, The work environment for High School graduates will actually get worse than simple part time. 

My nephew is a thrift store manager, with a $30,000 salary and 15 minimum wage employees.  Not bad for HS graduate. 

He was recently instructed to place all other employees on part-time, 29 hours or less.  BUT, he has to work to make up the shortfall until he can make new hires.  So his 45-hour-per-week now has to cover 70 hours, and he will probably have 20+ employees to manage - a harder job.  The extra hours cut his effective pay from $13.33 per hour to $8.57 per hour.  Ouch.  Oh, hey this is really working for central office.  They may not allow him to hire enough new part timers because HE can take up the slack…

So, in reality, the economy isn’t 30 hours or less, more of a 30 or 60 sort of thing.  If they don’t want to pay for your health care - then you get 29 hours.  If a company has to pay for your health care, you are going to work for much more than 40 hours - probably 50-60 hours per week to get the difference, and you probably won’t get the “good shift” times…because part-timers probably aren’t hungry enough to work the Sat/Sun midnight shift for minimum wage.

Ain’t life grand?

Dushan Lipensky

Aug. 1, 2013, 5:33 a.m.

TERM LIMITS——TERM LIMITS———-TERM LIMITS——-TERM LIMITS———TERM LIMITS

Douglas Reif

July 29, 2013, 8:26 a.m.

There appears to be a strange problem with the subsidy design in Obamacare.  There are remarkable jumps in price at two points.  They are where Medicaid eligibility ends and where the subsidy ends.

The Kaiser Family Foundation has a calculator at the following web site:  http://kff.org/interactive/subsidy-calculator/.  I assumed a family of four with two minor children, all non-smokers.  I also assumed expanded Medicaid to 138% of poverty line.

If your annual income is $32,499 you are eligible for Medicaid and pay no premium.  If your income is $32,500 you must purchase health insurance.  A bronze plan has no upfront premium but has large copays and out of pocket expenses that could easily be $1000 or more per year than the family would have to pay if it were on Medicaid.  The effective tax rate on that one dollar cold be well over 100,000%!  That’s the most expensive dollar working class families will ever earn.

If your income is $94,200, you are eligible for a subsidy, the amount of which is based on parents’ age and plan selection.  Assuming parents aged 50 and 45 with silver plan selection, your subsidy will be $4632.  If your income is $94,201 you no longer qualify for a subsidy, an effective tax rate of over 400,000%.  The income area for upper middle class from $94,200 to $100,000+ is a black hole for families of four, they are better off refusing the income.  Since income is based on MAGI (before deductions), you cannot offset it even by donating money to charity. 

There is going to be a big cottage industry aimed at gaming income to minimize health care expenses.  Am I the only one who finds this bizarre?

veritas.pacem@gmail.com

July 29, 2013, 7:34 a.m.

John,
I apologize for one element of my earlier post, accusing you of laying the rise of working poor at the feet of Ben Bernanke. Upon re-reading the piece I see now that it is your guest columnist Charles Gave doing so.

However, I depend on your sharp discernment not to propagate unsupported conclusions.
Thanks,
—Toby Sarver

veritas.pacem@gmail.com

July 29, 2013, 7:20 a.m.

John,

Wow! I appreciate that most of your past posts attempted to be apolitical, but this one has broken that trend with some blatant finger-pointing.

I don’t think you can lay the mantle of a growing working poor at the feet of Ben Bernanke. I think that monetary policy has been about stimulating the economy, but he doesn’t have control over individual actors. For example, he made lots of money available to banks, but they aren’t lending enough to support a robust recovery. Coincidentally, the bankers can make a very good margin on that money.

I think you need to re-read your guest’s post on the shrinking middle class that points out that this is the first time that corporate profit has exceeded corporate payroll. IMHO, the rise in negotiating power of the corporation over labor (organized or individually) has led to our current situation. Along with the increase in technology, the average worker’s productivity has increased greatly, probably because they’re simply getting paid less, and have little to say or do about it.

The replacement of full-time jobs with part-time jobs is simply an extension of the power the corporation has over labor. The former makes the best deal given the circumstances (e.g., providing healthcare for full-time workers), at the expense of the latter.

Let me make a few counter-points about the ACA:
1) To look at the cost of health insurance for someone under 30 is not convincing. One of the side effects of getting everyone into the health insurance pool is that young people will pay more than they used to. I consider it a down payment against their eventual drag on the system (if they make it into their 60’s).

2) The decreasing number of people on employer-provided health insurance is not a good argument. First, it is the employer’s decision. Second, it simply means that instead of the employer negotiating the rate, and passing the cost onto the employees, individuals will need to purchase on an HIX (Health Insurance eXchange). True, the jury is still out on the effectiveness of HIX’s in reducing the overall cost of heatlhcare/insurance, but we hope that creating a basket of benefits and putting it on “the open market” will create competition and bring down prices.

Yes, there are dire straights coming, with the rise of the “lumpen proletariat”. At first the upper class (top 10%) will find all these poor people very inconvenient—what with all the pan-handling, etc. Then crime will start to rise. Then the country will start to splinter into “safe zones” and “bad s*#?x happens zones”, with a large amount of money being spent on security. And of course the upper class will look to the government to supply that security and business continuity. I’m just trying to provide a more detailed picture of what Charles Gave meant when he said, “When poor people cannot earn a return on their savings or on their labor they remain trapped in poverty.”

John, keep up the good work. I believe you’re at your best when you remain apolitical.
Thanks,
—Toby Sarver

David Lunt

July 29, 2013, 6:17 a.m.

By far, the best piece you have written in a while.

cparks_y@yahoo.com

July 29, 2013, 5:32 a.m.

Over 55 workers:
Most of us started in a workplace that featured careers. With those came both skills and behavioral training, mentor ship, and career paths. The current work environment seems to feature short stays 1-5 years, requirement for certification in VERY specific skills, competitive environment, flat organizations with few supervisory and management positions. Those that are supervisors or managers have neither the skills nor time to be mentors and with short stays on the job little incentive to do so.

Quantitative Easing.
When the cost of capital is negative anyone with financial sense invests in capital expenditures. Robots and machines don’t need breaks, retirement plans, don’t form unions and generally are a lot less trouble to manage than people. Further the tax system is structured to reward capital investment with depreciation.

David Rowan

July 28, 2013, 4:13 p.m.

After reading your comments on Bernanke, I could not help but wonder if he is following these actions to achieve what you describe on purpose.

Progressives want a bigger government (no secret) - is Bernanke a willing player in this game?  One way to increase the speed of increasing the size of government is to create an environment that fosters unrest where the government can try to step in and become the “savior”.

HENRY SINDT

July 28, 2013, 2:31 p.m.

John has highlighted the most significant problem facing our great nation today.  Unfortunately, his piece identifies two scapegoats, Obamacare and and the Bernanke Fed, and misses the real culprit.  While both may play some role in the problem, the principal cause of this problem is a totally disfunctional CONGRESS.  So long as CONGRESS is focused on selling their votes to powerful special interest groups in order to get reelected and feather their own nests they will not take those actions that are in the best interests of the country.

George Laugelli

July 28, 2013, 12:03 p.m.

Somewhere halfway into the essay you acknowledge that this began long before Obama took office, but let’s make Obama-care the lede anyway. Blame Obama is so easy. How about big business selling out American workers by shipping jobs overseas to cheaper labor markets. Then add insult to injury by weaseling out of providing decent health care—something that used to be the norm not that long ago—by keeping workers below the 29-hour threshold. And workers who want to organize will find a host of new anti-labor laws passed by Republican controlled state legislatures. Meanwhile, Ben Bernanke pursues policies designed to keep the bankers richer and the poor poorer. Social unrest? Yeah, I’d say that’s a good call.

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