Questions about your employee benefit?

Suppose that Congress passes a law requiring employers to provide employees some benefit that raises the ...?

• Suppose that Congress passes a law requiring employers to provide employees some benefit (such as healthcare) that raises the cost of an employee by $4 per hour. a) What effect does this employer mandate have on the demand of labor? (In answering this and the following questions, be quantitative when you can.) b) If employers place a value on this benefit exactly equal to its cost, what effect does this employer mandate have on the supply of labor? c) If the wage is free to balance supply and demand, how does this law affect the wage and the level of employment? Are employers better or worse off? Are employees better or worse off? d) Suppose that, before the mandate, the wage in this market was $3 above the minimum wage. In this case, how does the employer mandate affect the wage, the level of employment and the level of unemployment? e) Now suppose that workers do not value the mandated benefit at all. How does this alternative assumption change your answers to parts (b) and (c)?

• Answer:

  a) I would suggest minimal immediate effect .. however some jobs that were not 'worth' automating will now be more cost effectively done by computer (software) or robots .. this will have a minor effect on the low end labor market = most skilled workers can not be easily replaced by machines, however it will drive 'more automation' at the lower end (eg, one man with a mechanical digger instead of 5 with shovels) .. but even so, many 'low end' jobs (eg cleaner) are almost impossible to automate ... b) Labor becomes more expensive (by $4 an hour) ... there will be fewer hires so supply increases .. c) If supply & demand balance, then plainly the employees direct wage will drop by $4 an hour. As a 'collective group' no one will be better or worse off, HOWEVER individuals who receive the benefit (eg Medicare) will be a LOT better off and those who don't will be $4 an hour worse off. The same applies to Employers.. those who employ large numbers of staff will be a 'worse off' .. those with few employees will be 'better off' (hence (a) above re: automation) d) Wage rates will drop to the 'minimium wage' .. however not all employers obey the law. This will mean 'ethical' employers will be 'undercut' by the 'unethical' ones ... however unemployment will still increase since demand will be reduced (although not by the full $1) e) Employees valuation does not matter (unless there is some way for Employers to 'avoid' the required benefit).