December 10, 2013

Schaeffer's Number: Health care costs $12 per hour worked

To put the question of minimum wages into a larger perspective, recall Peter Schaefer's jaw-dropping calculation that if you take the total cost of medical care in the United States and divide it by the total number of hours worked in the United States, it comes out to $12 per hour. Logical implications include:

- Wow. That's a really big number.
- We need to restrain the cost of health care.
- Yes but not everybody is that expensive.
- But, still ...

More broadly, Schaeffer's Number demonstrates the High Cost of Cheap Labor. 

An obvious distinction should be drawn between:

- low wage employers providing work for not very productive American citizens, which is largely a good; versus

- low wage employers drawing in large numbers of not very productive foreigners, which is largely a bad.

Unfortunately, the latter (e.g., large growers) tend to have their voices better represented in Congress and the media ("Crops Rotting in the Fields!") than the former.

18 comments:

Whiskey said...

Steve the primary employers of min wage or ****below**** illegals are Walmart, Chipotle, McDonalds, Burger King, Tyson, etc. Judging by raids by ICE.

Gubbler of the Society of Reformed Chechenistics said...

Why $12?

I think it's be a lot cooler if minimum wage was $100 per hr.

Anonymous said...

Unfortunately, the latter (e.g., large growers) tend to have their voices better represented in Congress than the former.

I've finally convinced my wife to buy Mexican produce instead of American, so we can do our part to put these US growers out of business once and for all. Import the produce, not the Mexicans.

Benjamin I. Espen said...

That number sounds about right. Where I work, we have a philosophy of being very transparent about exactly what our self-insured plan costs us. My actual health care plan is a little less than $20k annually, but if you added in Medicare taxes and the portion of my income tax that pays for ER care for the uninsured, it is pretty darn close to $24k, since I work 2000 hours or so in a year.

When I look at my awesome employer health care plan, I think things like:
-that would be a big chunk of income if it were just paid to me
-the sticker price for individual insurance isn't actually that bad
-average people with average jobs that have benefits have somewhere between 25-50% of their income in this fashion
-I've started mentally adjusting wage rates in my head using this number. Sometimes it amazes me that we are productive enough to pay for this
-Things that can't go on forever, don't.

Dan said...

The US health care system, aka the Medical Industrial Complex, demonstrates what happens when industry successfully buys government. Medical corporations decide the price they want to charge and government mandates that someone pay the price. If you wonder why your health care costs never go down this is why. The customer is not permitted to have a choice!

It also must be appreciated that the Medical Industrial Complex thrives in ways the Military Industrial Complex cannot. For one people in general want health care. They don't want wars, or at least wars where their family members might die. People also overvalue medical care. Yes, modern medical care is a miracle but the human body still heals at its own pace, Adrian Peterson's ACL nothwithstanding. Third, people don't like to face death. The ability for the elderly to get taxpayers to fund their quest for longevity ensures healthy profits to the caretakers who can cash in on this need.

Put another way, the demand for health care paid by someone else can NEVER be satisfied. In such an arrangement demand will always exceed supply and the economic resources spent to reach equilibrium will grow infinitely, or they would if the economy did not fall apart first.

Anonymous said...

Yes, we pay too much for healthcare compared to other industrialized countries, and don't get better outcomes. It's mostly not excess demand, but all the waste and rents going to providers and doctors, insurers, and pharma. Amazing how all the proponents of free trade and immigration never talk about bringing doctors salaries down to European levels by importing more doctors from abroad to increase supply (as we do for nurses).

Dave Pinsen said...

"Steve the primary employers of min wage or ****below**** illegals are Walmart, Chipotle, McDonalds, Burger King, Tyson, etc. Judging by raids by ICE."

Whiskey,

Can you provide links supporting this? I'm particularly suspicious about the claims about Walmart and Chipotle -- large corporations have a lot to lose from violating regulations. Maybe an individual McDonald's or Burger King franchisee might take the risk, but it seems like a stupid risk for a corporate exec at a large firm.

Dave Pinsen said...

"Low wage employers drawing in large numbers of not very productive foreigners, which is largely a bad."

Something else related to immigration that came to mind today. I'm out in Northwest NJ now, which is demographically more like the Midwest than the Northeast. The McDonald's I went to was manned by white teens, and managed by a middle aged white guy. The Subway (a much cheaper franchise to buy) was manned by a couple of Indian immigrants.

We often hear how many business are started by immigrants -- how many of these are franchises such as Subway or Dunkin' Donuts? And, more importantly, how does America benefit from this?

Subway and Dunkin' Donuts shops provide products that are in demand and generate tax revenue, but it's not as if those shops wouldn't exist if the immigrants didn't open them; without immigrant demand, the franchise fees would be lower and Americans would open those shops.

Anonymous said...

Something I've been wondering:

If the US had stuck with its, let's say, pre 1965 immigration policies, would it be able to pay for all the govt spending? Would it be a matter of going broke more slowly - nothing to be sniffed at, surely?

Yes, there are issues with the welfare state, like how it's paying the losers in an unfair system to not riot. (Yes, a lot of good people have made peace with that, and it may be inevitable to some extent. I like to think my country could aim higher.) But really, could it not have worked better with a whiter population?

Anonymous said...

Love that 'Schaeffer's number' buzzword, Steve, keep it up!

'Schaeffer's number' - a good short, memorable phrase, with the obvious allusion, of course, to various crucial numbers in mathematics and science, on which a lot of theory hinges eg Avogadro's number, Reynold's number etc. Just what we want. Good hard, quantifiable, measurable real effects, measured by good, quantifiable real numbers that are mathematical expressions of underlying nature. Hard to argue against.
Repeat the meme as oten as possible Steve. Make ure that the numpties at the NYT and 'The Economist' even get it and, inadvertantly, use it.

Damn good work Stve. It's the little things like this identifying a new universal constant, a nice pat catch-phrase, the endless little digs and slings and arrows at the pompous, the corrupt and 'The Economist', that make the difference.

If Steve Sailer didn't exist, then we would have had to invent him.

To repeat myself, damn good show, Steve. The unveiling of a universal constant like that, the crucial part is the naming and framing of it, is a rare nugget of pure backlash gold - it can't be beat by the liars and decievers. It will live on after we've all gone, in the same way that chemists still talk about their 'mols'.

Anonymous said...

The Subway (a much cheaper franchise to buy) was manned by a couple of Indian immigrants.

Where I am (in England) the Subway franchise - 2 or 3 shops - is owned by an Indian bloke. I believe he arrived in the area as a student at the local university.

Maxwell Power said...

The Chipotle raids in D.C. were big news, hard to miss for someone even casually following the topic. A large franchise for Burger King, say 50+ locations, probably employs more than one worker with a false SSN; I would expect each store to hire several throughout the year. The site turnover is high and the immediate parent company being huge has nothing to do with its regulatory vulnerability. For any multi-site provider of service jobs in a major metro that's not current w/ E-Verify -- basically every eatery, hotel, non-union supermarket, or anything beside the 4-person family operations -- be confident they've had illegitimate workers on payroll. Hiring, training, and losing workers within the space of a week is routine management stuff.

As for the South Asians running Subways, donut shops, gas stations, etc. that's because higher margin grocery/liquor was taken over by Koreans first. It is the obvious path-of-least-resistance left for parking money from the old country with few strings attached. These never become vital contributors to the tax base, however they're somewhat important in the Real Estate Lords' food chain

Anonymous said...

While visiting my mother just north of Tampa for Thanksgiving, I had the occasion, believe it or not, to pay my first ever visit to Walmart. It was entirely staffed by lumpenprole whites. I imagine that wouldn't be the case in by native Massachusetts.

Jon said...

Using the slave term, "health care" cedes that function to government or quasi-government force. "Care" is relationship to child, car, pet or grandmother with Alzheimers. I would rather be free to seek medical services, contracted for with an equal in law.

Bill said...


Anonymous said . . .

Yes, we pay too much for healthcare compared to other industrialized countries, and don't get better outcomes. It's mostly not excess demand, but all the waste and rents going to providers and doctors, insurers, and pharma.

It's more the transfers/rents than the waste. Doctors and other health care workers make much more in the US than they do in other developed countries. Differences in quantity of care used (hospital stays, doctor visits, MRI scans, etc) end up being pretty modest once you stop cherry-picking the few, famous examples of big differences.

Dental hygienists make $70K/yr on average plus benefits, to use my favorite example.

Bill said...


Dave Pinsen said...

Whiskey,

Can you provide links supporting this? I'm particularly suspicious about the claims about Walmart and Chipotle [hiring illegals]


Walmart hired subcontractors to clean its stores which subcontractors hired illegals. Here is a recent story about it.

I think this is pretty common behavior by corporate America. Outsourcing janitorial services is common. Failing to check real hard whether your subcontractors are completely compliant with US labor laws is also probably pretty common, though probably less so in the wake of the fine Walmart got for this failure to check real hard.

Whether, as a policy matter, Walmart ought to be responsible for the labor law violations of its subcontractors is an interesting question. I think I would come down on the side of "yes," though.

Anonymous said...

Steve, one topic I've never seen you touch is campaign finance reform. You realize that this $12 minimum wage idea could never get traction, for the same reason that populist immigration reform can't do better than hold the corporate lobby to a stalemate - no effective campaign finance reform. (Oh, yeah, and reasonable financial regulations, too.)

Handle said...

You hear a lot about income inequality, but, especially for the public sector, pure 'annual base pay' doesn't account for 'total compensation' which includes the present value of such enormous benefits as health care and pensions and job security. Civil servants are known to turn down a lot of more lucrative private-sector job offers because of the enhanced value of these perquisites.

Likewise, you hear a lot about inequality these days (i.e. the President's latest speech), but again, that income inequality fails to account for the value of net transfers redistributive transfers via the welfare state, such as food stamps, Section 8, and of course Medicaid and Medicare, which account for a good chunk of that $12 an hour.

You can't have the 'high effective marginal rates of taxation' associated with means-tested phase-outs simultaneously with 'high levels of inequality'.

If you add it all up, poor people in America consume a lot, not that much less than 'lower middle class' people do.

And what about expenditures 'on behalf' of poor people - like social workers, and so on? If you combine what they consume, with what's spent on them, they probably get more resources allocated to them than even the median income earner.