Deja Vu All Over Again
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.
Dodd argues that companies with parental leave save money on absenteeism and can plan for vacancies more accurately. Opponents say that parental leave would require more temporary workers and more overtime pay, while hampering productivity. But what they really resent is government acting as Big Brother.
"In contrast to most of my colleagues, I have great faith in the willingness of employers to meet the needs of their employees," states Senator Rudy Boschwitz (R-Minn.), ranking minority member of the Senate Small Business Committee and the founder of a chain of home-improvement stores in the Midwest. "I suppose some employers are hardheaded and uncooperative, but in today's business climate I can't see that they will last very long."
Boschwitz concedes that some form of parental leave -- limited to maternal leave -- is likely to pass. One alternative circulating in the Capitol Hill rumor mill would give employers unspecified tax credits for parental-leave programs.
Mandated health insurance. Senator Kennedy's bill was approved by the Labor and Human Resources Committee last winter but never made it to a full Senate vote. Kennedy will try again. The legislation would require all employers -- regardless of company size -- to provide employees who work at least 17.5 hours a week, and their dependents, with medical benefits that meet minimum government standards.
Twenty-three million of the 37 million uninsured Americans would be covered by this legislation. Less than half of companies with 10 or fewer employees currently provide coverage. "The prime reason small businesses do not offer insurance is a simple one: they cannot afford it," says T. Peter Ruane, who heads the Small Business Legislative Council's mandated-benefits task force. Critics say that the additional cost of providing insurance could lead to the loss of up to a million jobs.
Estimates of the cost range from $736 a year for a single worker and $1,868 for a family (Kennedy's figures) to opponents' estimates of around $2,900 for an employee with dependents. Kennedy says the plan would cost business about $27 billion a year, but other estimates go as high as $100 billion. On the other hand, proponents argue that companies that already offer health insurance pay higher rates to subsidize losses of hospitals that provide care to uninsured workers.
Self-employed individuals may get a break this year. Now, they can deduct only 25% of the health premiums they pay for themselves and their families. Consequently, many of them "go bare." There is growing support for legislation that would enable them to write off 100% of the cost.
Long-term health care. This proposal, which would pay for unlimited home health care, did not get very far last time. Its chances in the 101st Congress, however, are considered much better. Championed in the House by Claude Pepper, the 88-year-old Florida Democrat, it lost on parliamentary maneuver. "Today's action marks the beginning, not the end, of the debate over the best way to meet the need for long-term care," said Representative Dan Rostenkowski afterward. Rostenkowski chairs the powerful Ways and Means Committee. In the Senate, long-term health care is a pet program of George Mitchell of Maine, the new Senate Majority Leader.
Cost estimates for such care range from $22 billion to $63 billion. Medicare payroll taxes would cover it. Mitchell would remove the cap on annual income -- in 1989, it is $46,500 -- subject to the 1.45% Medicare portion of payroll taxes. Employers would also kick in 1.45%.
Capitol Hill isn't the only battleground for the mandated-benefits controversy. In recent years, state legislators have passed numerous requirements for companies doing business in their states. In 1974, for instance, there were only 139 state laws requiring that corporate medical plans cover such things as acupuncture treatments and psychologists' fees; by 1986 the number was 645.
Similarly, numerous states have established their own minimum-wage rates and enacted their own parental and pregnancy-leave requirements.
On both the local and national levels, these are issues that are sure to be debated through the 1990s.
A higher minimum wage and some form of maternity leave stand a better-than-even chance of passing in the 101st Congress.
Higher minimum wage 1:2
Parental leave (maternity only) 2:3
Long-term health care 6:1
Health insurance 15:1 n
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