Deja Vu All Over Again

Summary of the mandated benefits debate and the uncertain outcome both locally and nationally

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The battle over mandated benefits is certain to be replayed in the new Congress. What's not so certain is the outcome

As the curtain rises on the 101st Congress, the business community can brace itself for a spirited performance of "Mandated Benefits: The Sequel."

You may recall that the 100th Congress produced a barrage of bills aimed at elevating the welfare of American workers. The list is familiar: an increased minimum wage, parental leave, mandatory health insurance, and the like. Proponents called them "marketplace solutions" to work-force problems. Critics called them "backdoor taxes" on employers. And everyone called them mandated benefits.

They provoked intense political infighting, and, in the end, none passed. Most fell victim to dogged Republican filibustering on the Senate floor. But the voters have returned virtually the same cast of congressional characters, guaranteeing that the battles will be refought. "We're going right back into the trenches," says John Motley, chief lobbyist for the National Federation of Independent Business, whose membership rose from 500,000 companies to 570,000 in the past two years, largely due to the mandated-benefits controversy.

What riles business is that mandated benefits install the government squarely behind management's desk. They set terms of employment, raise labor costs, and curb flexibility in designing compensation packages.

To be sure, mandated benefits are not new, nor are they all unwarranted. As long ago as the 1930s, the feds have been active in legislating benefits and working conditions. Congress passed child-labor laws and the 40-hour workweek, for example, and banned sweatshop conditions. Social Security itself is a mandated benefit, as are unemployment insurance and workers' compensation. More recently, federal courts have joined in, ruling that employees cannot be terminated "at will" -- that is, without cause.

This new wave represents what critics call the "Europeanization" of U.S. labor. Nobody knows what the new lineup of mandated benefits will cost. All manner of think tanks and analysts jumped into the mandates debate last time, trying to forecast the effect on operating costs, job growth, and company formation and failure.

"Supporters of mandated benefits seem to live under the illusion that the employer will bear the costs in terms of reduced profits," reported the nonprofit Institute for Research on the Economics of Taxation (IRET). "While employers may suffer some profit loss at first, ultimately workers will bear the full costs in terms of pay packages that are less satisfying, pay levels that are lower, and unemployment." The burden would be spread among consumers, too, in the form of higher prices.

The action this time is likely to be more interesting -- and unpredictable. The wild card is President Bush. Ronald Reagan could be counted on to use his veto stamp. Bush is thought to be more prone to compromise. Herewith, the mandated benefits that will be in the news:

Minimum wage. Senator Edward Kennedy (D-Mass.) wants to increase the federal minimum hourly wage from $3.35, which was the rate set in 1981, to $4.55 by 1991.

Kennedy argues that basic social justice requires it. Inflation since 1981 has reduced the $3.35 to $2.50 in constant dollars. A full-time (52 40-hour weeks) minimum-wage worker grosses $6,968 a year, well below the poverty line for a family of two. Not many people are supporting families on that sort of money. According to Kennedy, 25% of the country's 4.7 million minimum-wage earners are teenagers working after school. Most others are supplementing family income.

At the core of the debate is the question of job loss. Clearly, it would erode employment opportunities for young people just starting out. A major concern is that a hike in the minimum wage would eliminate jobs for teenagers. Hardest hit would be low-skilled workers, such as inner-city black teenagers. Estimates of total job loss with an increased minimum wage range from 70,000 to 750,000.

If the intent is to help the working poor, an emerging alternative is an expansion of the Earned Income Tax Credit. The EITC is a refundable credit of 14% of the first $5,714 earned by an eligible person who maintains a home for one or more children.

Parental leave. As originally written, the parental-leave bill would have provided up to 18 weeks of unpaid parental leave and 26 weeks of unpaid medical leave, exempting businesses with 15 or fewer workers. During the leave, employers would continue all health-insurance coverage already being provided. A returning worker would have to be reinstated in the same job or a comparable position, with no loss in salary, benefits, or seniority.

Business opposition was so fierce that Senator Christopher Dodd (D-Conn.), the bill's sponsor, scaled it back to 10 weeks of unpaid parental leave and 10 weeks of unpaid medical leave, and exempted companies with fewer than 50 employees. That would ensure that only 5% of all businesses and only 39% of all workers would be covered. The General Accounting Office estimated the cost to employers at $147 million, mainly for medical premiums.

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