Since writing my most recent column on part-time employment, the media furor has seemingly only gotten louder—tied largely to the Affordable Care Act’s (or the ACA’s or ObamaCare’s—take your pick) anticipated impact on how companies structure payrolls. What most point to is the employer mandate—the requirement employers provide health care plans to any worker logging more than 30 hours per week. CEOs of large corporations have penned editorials balking the Bureau of Labor Statistics’ data are wrong—part-time employment is near-guaranteed to rise as the employer mandate kicks in. Others argue the ACA has little to no impact. The Investor’s Business Daily is keeping a running tally of businesses that announce they’re cutting part-time employees’ hours or otherwise altering their labor forces due to the ACA. The kerfuffle provides a great opportunity for investors to avoid getting caught by a common cognitive error: failing to properly scale.
First, an important caveat: I have very little doubt the ACA’s implementation will create dislocations in several areas of the economy over the next few years—and possibly even beyond. As I’ve argued on MarketMinder (and elsewhere) before, government intervention in any area of the economy leads to unintended consequences. Faced with shifting incentives, businesses will react accordingly: If it makes the most economic sense for them to shift to more part-time employees, over time, they likely will; ditto if it makes sense for them to stop providing insurance altogether and send their employees to the state exchanges. And such shifts over time will determine the winners and losers of the government’s latest episode of “Survivor: Free-Market Intervention.”
But for investors, the question is whether those shifts portend something meaningful for future earnings and profitability of US businesses—stock ownership is, after all, owning a slice of businesses’ future earnings. Seen in that light, legislation such as the ACA actually creates opportunities—to identify the likeliest winners and advantageously invest accordingly. Or to realize the majority of investors are seeing this issue incorrectly and similarly make a better forward-looking decision. In the case of the ACA and employment, it seems to me the media at least—and likely many investors—are failing to scale the issue appropriately. Let’s take a look at the aforementioned list of employers taking allegedly adverse action as a result of the new law. As of October 9, 2013, the IBD’s data show some 331 companies have adjusted hours (in some form or fashion) tied to the ACA. Of those, the vast majority (79%) are … public institutions. A touch ironic, isn’t it? The flipside of that is by at least one count, only 69 private companies in the whole of the United States have restructured their workforces due to the ACA.
Second, those adjusting their workforces are doing it in slightly different ways: Some are shifting only new employees to part-time schedules capped at 29 hours—meaning existing employees won’t be much impacted. Some are shifting full-time employees to part time—though my tally of the data yielded fewer than 15 companies making such moves. And then there are organizations like the Mississinewa Community School District, which is apparently cutting a whopping 15 minutes per day for 3 teachers’ aides. Possibly a challenge for those teachers’ aides, but hardly a threat to the overall vibrancy of the US economy.
My aim is far from minimizing the impact such changes have on the individuals involved—but for investors, it’s critical to separate the human impact from the market impact to the greatest extent possible. There is one final (and incredibly powerful) way to do that: comparing the number of employers taking any sort of action to the total number of US employers. Now, given the Census Bureau is currently withholding their (already collected and tallied) data due to the government shutdown, a precise figure is hard to come by. But according to The Wall Street Journal, there are currently some 6 million employers in the US. The Department of Labor references administering regulations for about 10 million employers. Some private sources put the number closer to 30 million. To be conservative, let’s use the smallest number—The Wall Street Journal’s 6 million. Then the percentage of employers shifting their workforces as a result of the ACA is .0055%.
Said another way, the percentage of employers shifting their workforces as a result of the ACA, rounded to the nearest whole number, is … zero.
Now, maybe that number goes up over time. After all, the employer mandate was kicked forward to 2015, and maybe there are other as-yet-unanticipated impacts. (We were told we’d have to pass the bill to find out what’s in it, after all.) Maybe. But consider the ACA’s timeline: Discussion came to the fore during the 2008 presidential election, the bill itself was debated throughout 2009, and it was finally signed into law by President Obama on March 23, 2010. The Supreme Court upheld the primary challenge to its constitutionality on June 28, 2012. Meaning businesses have had years, not weeks or months, to see this coming and plan and adjust accordingly. Might some be delaying? Sure. But who’s to say politicians don’t kick that can still further down the road? (It seems to be one of their stronger suits.) The likelihood there is a big market-impacting plank of the ACA that’s undiscovered and unknown by January 1, 2015—nearly five years after it became law—is minimal.
While the ACA may be causing some businesses to restructure their workforces, the effect seems far too small to affect stocks much.