Prof. Oren Levin-Waldman Will Delve Into This Issue on Wednesday, February 13, 2019th on the Westchester On the Level Internet Radio Broadcast
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Healthcare Reform is Essential for the American Labor Market
By Oren M. Levin-Waldman
As more and more Democrats declare their candidacy for the party nomination to be President in 2020, the issue of healthcare reform is again front and center. Of course, it has always been there, and no sooner than the end of the 2016 election, Senator Bernie Sanders of Vermont was calling for Medicare for all. That is, he was calling for a single payer system, which all the presidential candidates on the Democratic side appear to be on board for. And yet, they all seem to argue the morality of the issue instead of its importance to the labor market.
There is no question that there is a moral component to healthcare. One should not have to go bankrupt when one becomes sick amidst mounting hospital costs. Nor should one be denied healthcare because one cannot afford it. But let’s be clear: the Affordable Care Act did not necessarily guarantee healthcare; it ensured that all could have access to insurance. A person who purchases the cheapest insurance on an exchange with as much as a $12,000 deductible or more because that is all that person can afford, has no more healthcare than before.
Healthcare should be reformed because it would represent a tremendous boost to America’s competitive position in the world, and it would also greatly benefit the American labor market. When health insurance adds $1500 to $2000 to the sticker price of American automobiles, that places the U.S. at a disadvantage vis-a-vis automobiles from other countries where health insurance is provided by the government.
In the labor market, the effects of employer-based insurance have simply been too high. Wages in the U.S. have been stagnant for many years now, and for several reasons. We are all familiar with the standard neoclassical argument that an oversupply of low-skilled workers suppresses the wages of those at the bottom of the distribution. And I have argued many times in this space that wages have been stagnant because of the deterioration of labor market institutions like labor unions and the minimum wage, which have worked to boost wages.
Wages have also been stagnant, as I argued several weeks ago in this space, because of lax enforcement of anti-trust laws and the failure to define some businesses’ market power as a form of monopoly which is a restraint of free trade. Those with considerable market power are in a position to set wages and effectively keep them low. But another reason for stagnant wages has been rising healthcare costs.
The typical wage bill has two components: money wages and benefits. Employers are only going to pay so much in total wages to their workers. If the benefits portion of their total compensation rise, then their money wages will effectively stagnate. As the costs of health insurance continue to increase, then their money wages will not. Of course, this problem has been exacerbated by the deterioration of labor market institutions.
The reason we have employer-based insurance is relatively simple. Following World War II and the nation was still under wage and price controls, employers could not offer higher wages to their workers, but they could offer benefits instead. As part of pattern bargaining between the UAW and automakers, workers were offered health insurance in lieu of higher wages. At the time, health insurance was relatively cheap. So from the perspective of the employer, they were ahead. As other employers began to do the same thing, insurance provided by employers became the norm.
Over the years, however, health insurance costs increased and in many cases became exorbitant. If healthcare was costing employers more, the only way to economize on labor costs would be to slow the increase in money wages. Or worse, export American jobs. We are all familiar with the neoclassical arguments that a major source of capital mobility and the exportation of American jobs has been wage rigidity. There is no question that employers have closed down operations in the U.S. in order to get out from union influence. But it can probably be inferred that rising healthcare costs have also been a contributing factor, as they affect the total wage bill.
Despite rising healthcare costs and the burden it has placed on employers, employers have been vehemently opposed to the types of healthcare reform that eliminates employer-based insurance because it would diminish their control of their workers. At least until the requirement that individuals could not be denied insurance due to preexisting conditions, workers who had preexisting conditions were effectively locked into their jobs.
Serious healthcare reform could make the labor market better for workers. If a single payer, then workers would no longer be locked into their jobs. Even if everybody paid additional money in taxes for the insurance, it might still be cheaper than the premiums they currently pay, especially to obtain family coverage. It is then possible that free of the burden of providing insurance, workers’ money wages would be able to rise as well.
Another type of reform that isn’t single payer, but perhaps is something that Republicans ought to support is the elimination of employer insurance in favor of individuals purchasing their own plans. One of the reasons that health insurance is so expensive is that there is no real competition in the market place. If individuals purchased their own insurance, there would be more purchasers of insurance and insurance companies would be competing with each other for their business. This would naturally lower premiums.
Lower premiums along with higher money wages could make insurance more affordable while giving the U.S. a competitive boost. Or employers could still opt to give their workers health insurance benefits in the form of vouchers that they could apply to the purchase of insurance. In either case, workers would no longer be locked into their jobs. A more mobile workforce might also serve to boost wages as well.
It is curious, however, why those who espouse healthcare reform don’t couch it in terms of the labor market, and our need to be more competitive in the global economy. There is no question that the morality of the issue should not be discounted. But if politicians really wanted to be more effective and appeal to more mainstream voters, they would explain why it is important to workers specifically and the larger middle class more generally.
Restoring the Middle Class through Wage / Oren M. Levin-Waldman / Palgrave MacMillan
This book makes the case for minimum wage as a way to improve well-being of middle-income workers, reduce income inequality, and enhance democracy….
Minimum Wage: A Reference Handbook / ABC – CLIO
The Minimum Wage: A Reference Handbook By Oren M. Levin-Waldman. As of 2014, the minimum wage in Seattle is $15 an hour — double the federal minimum wage.
“Wage Policy, Income Distribution, and Democratic Theory” By Oren M. Levin-Waldman
Dr. Oren M. Levin-Waldman, Ph.D., Professor at the Graduate School for Public Affairs and Administration at Metropolitan College of New York, Research Scholar at the Binzagr Institute for Sustainable Prosperity, as well as faculty member in the Milano School for International Affairs, Management, and Urban Policy at the New School. Direct email to: