Let's Not Be Like France
Subscribe today for Free Enterprise Updates
- Latest business trends and best practices
- News about legislation and regulation impacting business
- Business how-to articles from industry experts
- Commentary and interviews with newsmakers in business and politics
France has this curious fact about its economy: “The country has 2.4 times as many companies with 49 employees as with 50.” Businessweek’s Gregory Viscusi and Mark Deen explain why:
Once a company has at least 50 employees inside France, management must create three worker councils, introduce profit sharing, and submit restructuring plans to the councils if the company decides to fire workers for economic reasons.
The story goes on to note that French business owners respond by creating multiple, small companies. That hurts their economic competitiveness. French firms would be better able to scale their operations if they weren’t incentivized to stay below the 50-employee barrier.
Besides being a lesson on how regulations create perverse incentives and unintended consequences, this story translates well to what could happen in the U.S. starting in 2014. Under the Patient Protection and Affordable Care Act (PPACA) companies with 50 or more full-time equivalent employees – a calculation based on the number of full-time and part time employees employed - (labeled “large employers”) will have to either offer a health insurance plan or potentially pay a penalty based on the number of full-time employees. What’s more, we are still not exactly sure what minimum benefits will have to be offered in a plan.
These details matter to people outside the health care policy world. Last year, Brian Vaughn, owner and president of the Georgia Burger King franchise, Nearly Famous, Inc., testified at a House Subcommittee that Obamacare creates a perverse incentive for businesspeople to hire part-time workers over full-time workers and avoid being classified as a large employer [his emphasis]:
Prior to the law’s enactment – my goal had always been to hire fewer people for more hours. It is easier to retain employees that work full time. However, now that the law has passed, I have to consider options other than what makes practical business sense. Now, because of what Washington has mandated, it seems to make more practical business sense for me to hire more people for fewer hours.
Economic growth will be stunted when bad policy and not sound businesses analysis guides hiring decisions. In a job market with high unemployment, this makes about as much sense as creating multiple companies in France.