Economics teaches that everything of value has a cost. "There's no such thing as a free lunch," as economist Milton Friedman once put it. In fact, maybe the two most important economic questions ever asked are, "What's it going to cost?" and "Who's going to pay for it?"
In at least one area of critical significance to business, the recently-adjourned and soon-to-expire 100th Congress behaved this year as if free lunches really do exist. That's the area of "mandated benefits"--a range of programs for employees which many in Washington want to force employers to provide. In this past session of Congress, more than ten separate required benefit laws were proposed or enacted, representing a total potential price tag to businesses of between $40 billion and $120 billion a year.
The restraints of the Gramm-Rudman deficit reduction law make it difficult for the Congress to enact big new spending initiatives, hence the explosion in proposals to make businesses become a checkbook for the welfare state. "Mandated benefits" may not show up on Uncle Sam's books, but they sure aren't free. As a recent report from The Heritage Foundation points out, their true cost is ultimately borne by consumers in the form of higher prices, by workers in the form of lower wages and destroyed jobs, and by the Federal Treasury in the form of reduced revenues from a slower-growing economy,"
Senator Edward Kennedy's health care bill failed to become law this year, but it'll be pushed even harder in 1989. It would require employers to provide employees working over 17.5 hours a week-- and their dependents--with in-patient and out-patient care by physicians and hospitals, as well as prenatal and baby care. Estimates of the annual expense to business start at about $25 billion.
"High Risk Occupational Disease Prevention" legislation passed the House, but was defeated in the Senate. Like the Kennedy bill, it'll be back for consideration next year. It would require firms to offer health monitoring and testing to current and
former employees who are, or have been, exposed to hazardous substances in the work place. If the worker has suffered injury due to exposure, says Heritage analyst Stephen Moore, the employer must offer the worker a new job at the same salary level, or pay the worker his salary and medical insurance for one year. The firm would be forced to pay for these benefits even if its workers were fully informed of the health risk and were already compensated for this risk through a higher salary. Cost of this one: between $5.8 billion and $6.4 billion per year.
Congress has also been flirting with a hike in the minimum wage. Most economists advise that the law can't make somebody worth a certain amount simply making it illegal to pay him any less, but that's no deterrent to a sizable number of congressmen. They nearly passed a bill to raise the minimum to $4.55 an hour over three years. Such an event would price many young and least-skilled workers out of the labor market and put upward pressure on prices throughout the economy.
Legislation to require businesses of 20 or more workers to provide 10 weeks of unpaid parental leave to new parents got a serious hearing this year and will be on the front burner in 1989. Disruptions and expenses of temporary help would likely cost hundreds of millions of dollars annually.
One mandatory benefit which passed this year was plant closing notification. Though sold as a costless, humanitarian measure, it is expected by economists to translate into millions in expense and a reduction in U.S. competitiveness.
These and a laundry list of other "mandatory benefits" comprise the biggest and most deceptively benign agenda for labor since the New Deal. And there's no better way to torpedo the job-generating capacity of America's economic expansion than for Congress to be so foolish as to pass them into law in the coming year.
If that happens, the free lunch that Congress expects to get will give the country a bad case of indigestion.
Mr. Reed is President of The Mackinac Center, a private, non-profit educational and research organization in Midland. Permission is hereby granted to print or broadcast this article, in whole or in part, with appropriate credit given to the author and to The Mackinac Center.