Thanks, Obamacare: Forever 21 Edition

Forever 21 - their flagship store… I heard that they bought out the previous tennant and happily pay EUR 2 million per month rent…. better sell a lot of T-shirts this month!

Via Policy Mic, if you work at Forever 21 prepare to be underemployed thanks to the Affordable Care Act. In a leaked memo from the company’s H.R. department, associate director Carla Macias writes “As a result [of an internal budgeting audit], we are reducing a number of full-time non-management positions.” How do we know this is a response to health care reform? Julie Gerstein explains:

All employees who received the memo will be reduced to a schedule to not exceed 29.5 hours per week. Why is that the magic number? Because under President Obama’s Affordable Care Act, mid- and large-sized employers are required to pay for health insurance for employees who work 30 hours or more. Forever 21 thinks it can get around this simply by reducing its technically-full time staff to part-time positions.

And they’re right.

As Gerstein continues to note, not only are these employees losing hours but some are also losing whatever full-time non-wage benefits they were receiving — including any employer-provided health insurance, dental and vision coverage, paid-time off, as well as trips to the bathroom on the clock. Okay, I made that last one up. Probably. Yet there’s more going on here than simplified firm incentives in a Obamacare world.

First, as the Atlanta Journal-Constitution writes, the change will account for less than one percent of the retailer’s U.S. workforce (Jonathan Cohn reports it as, wait for it, 196 employees). Second, that the company decided to stop providing medical benefits to some portion of that number isn’t dictated by the employer mandate. It’s not clear whether they were self-insured or used a third party, but either their benefits were too sparse to meet the minimum standard for policies under the law, too expensive, or just made sense to no longer provide the coverage.

Whatever the reason nothing is actually forcing them to make this change. Employer-provided benefits don’t exist in a zero-sum vacuum, and neither are they the result of corporate altruism. They are non-wage compensation, meant to attract and retain a certain level of employee talent. Any company could, theoretically, reduce their labor costs by not providing these benefits — and that possibility would exist with or without the Affordable Care Act.

In this specific case Forever 21 doesn’t strike me as a company that would particularly go out of it’s way to compete for your labor, as they primarily employ part-time high school students. They’ve also been sued in the past for wage and benefit theft. It’s probably more accurate to say that they, like many low-wage employers, would be perfectly content to pay their employees as little as possible. This isn’t so much “Thanks, Obama,” as it appears to be a genuine “Thank you Obama!” for giving them a convenient reason to make this change.

Perhaps we should have a expectation of a company’s behavior that represents a middle ground of sorts. That is, we should recognize that firms are not your friends, and should not be given the standard assumption of having a moral compass that always points towards “Do what’s right.” Likewise, we shouldn’t pretend they are automatons that always rationally respond to incentives. They are run by people and thus are imbued with the gamut of irrationality that comes with being human. In a way I’m saying that if corporations are people too, then we should treat them as “big boys and girls” that make their own decisions.

As with any piece of legislation that has wide-ranging effects, there will be trade-offs to insuring millions of Americans under the ACA. At least in these types of instances, the segment of the population mostly likely to work at businesses that would rather cut your hours than compete for more talented labor is also the most likely to now have affordable access to health care. Supporters of the law shouldn’t run from this reality or deny it’s existence. Rather, we should be asking detractors why public policy shouldn’t be responsive to people’s most pressing needs and not to the conveniences to low-wage employers.


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