Wage vs. ROUE: Tax, Trust Fund and Benefits Impacts of Not Hiring the Unemployed

UNEMPLOYMENT DENIED/Image: Masaccio, Expulsion of Adam and Eve from Paradise

The recently proposed American Jobs Act (the “AJA”) contains provisions designed to prohibit, prevent and punish what it characterizes as discrimination against the unemployed  whose applications are rejected when the applicant is unemployed. Further characterizing the refusal to hire the unemployed solely because they are unemployed as a burden on commerce, the AJA outlines five ways that Congress deems refusing to hire the unemployed imposes such burdens. In two previous articles, I examined the first two “burden” claims and arguments, their cogency and their limitations.

Now, the remaining task is to evaluate the remaining three—numbers (3) to (5). In Section 372, the AJA declares that allowing refusal of the unemployed qua unemployed will contribute to

“(1) reducing personal consumption and undermining economic stability and growth;

(2) squandering human capital essential to the Nation’s economic vibrancy and growth;

(3) increasing demands for Federal and State unemployment insurance benefits, reducing trust fund assets, and leading to higher payroll taxes for employers, cuts in benefits for jobless workers, or both;

(4) imposing additional burdens on publicly funded health and welfare programs; and

(5) depressing income, property, and other tax revenues that the Federal Government, States, and localities rely on to support operations and institutions essential to commerce.”

Can these latter three claims and the associated implication that the burdens are in addition to being real are also unjustifiable and beyond alleviation by any means other than prohibition of refusal stand up to logical and factual scrutiny? If these are actual burdens imposed by refusal to hire the unemployed, can they be eased in any way other than by prohibiting the employer practice or denying any claimed employer right of such refusal? Does preservation of the right of refusal morally or practically trump the burdens, or vice versa?

Although whether the burdens can be eased or justified without prohibition of an alleged “right of refusal”, was not addressed in connection with claims (1) and (2) above in the previous two articles, it is a question well-worth addressing in connection with all five of the AJA claims and any other reason proffered for prohibiting the refusal practice. After all, sometimes an economic burden, however onerous, may have to be accepted to prevent a moral, legal, practical or political misstep, wrong or crisis, e.g., the burden of economic losses to the South that attended the morally imperative abolition of slavery. Analogously, some may argue that retaining the right to reject the unemployed is neither discrimination nor negotiable, regardless of the burdens the right may impose on commerce.

Wage vs. ROUE

The focus of this article, the third claim, that allowing refusal of the unemployed (herein abbreviated to “ROUE”, but not to be confused with “Wade vs. Roe” or with debauched roués) will burden commerce by “increasing demands for Federal and State unemployment insurance benefits, reducing trust fund assets, and leading to higher payroll taxes for employers, cuts in benefits for jobless workers, or both” seems prima facie defensible.

However, it can be defended only with some collateral assumptions that include the premise that the vast majority of those denied employment by one employer on the basis of their status as unemployed will also be extremely likely to experience the same outcome with the next, most, many or all employers, and as a result increase demand for unemployment benefits—even though it has been reported that only about 150 such refusals out of millions of job postings have been identified. This third claim, like all the others, is also is premised on the prediction that only a minority of the refused unemployed will become self-employed (for now, probably a safe prediction).

Prohibiting a practice that is very rare on the grounds that if it is not prohibited it may very well become too common is a tricky line of argumentation—a line of reasoning very similar to the “what if everybody did that?” kind of moral, legal or practical reasoning, e.g., “What would happen if everybody and not just those with medicinal needs were allowed to smoke marijuana without penalty?”  or “What would happen if everybody carried a gun?”  That kind of “but what if?” prohibitory legislation can become intrusive, frivolous or dangerous when the prohibition impinges otherwise universal or very widely recognized and exercised rights, e.g., prohibition of depictions of deities or prophets that guts free-speech rights.

The WIEDT? Argument

What also makes it tricky is the very real possibility, if not high probability, that (authorization of) the practice is unlikely to become universal—for example, because the rational self-interest of employers (according to some critics of such prohibitory legislation) will ensure that applicant credentials will count more than employment status in making a hiring decision. Hence, so the rationalist argument goes, only a quirky handful of employers will discriminate in this way—making the legislated prohibition of ROUE unnecessary as well as bureaucratically and legally cumbersome and intrusive. Countering this rationalist argument is the view that, irrespective of how rare something that is wrong is and will remain, not a single instance of it should be allowed, e.g., denying anyone access to even a single restaurant because of religion or race.

To the extent that the burden-claim rests on the intent to prevent a “what if everybody did that” (hereafter, “WIEDT?”) scenario from developing, it shares the defect that afflicts all such arguments: As a test of moral or practical acceptability, the WIEDT? standard is far too strict and would proscribe virtually every human activity, including essential ones, such as being a practicing physician—e.g., what would happen if everybody became a physician? We would all starve, fires would burn uncontrollably, no toilets would be manufactured or maintained, etc. Accordingly, the WIEDT? argument seems neither necessary nor sufficient to prohibit ROUE.

Clearly the foregoing observations apply to all five of the AJA burden-claims, not just the third. However, the specific claim that allowing ROUE will increase filings for unemployment benefits does specifically hinge on the expectation that self-employment or employment by one or more of the vastly more numerous “rational employers” will be rare.

Higher Payroll Taxes and Depleted Trust-Fund Assets?

The claim that ROUE would lead to higher payroll taxes for employers requires detailed argumentation. If two people apply for a job that only one of them can get, why would the hiring of a currently unemployed applicant automaticallyimpact payroll taxes differently from the hiring of a currently employed applicant? Medicare and Social Security payroll taxes should be unaffected by the pre-hiring employment status of a new employee. If the implicit premise and conceptualization is that payroll taxes should be increased to fund unemployment benefits programs for those who remain unemployed, rather than for the contingency that the currently employed worker may become unemployed, that premise does not entail the conclusion that such taxes will in fact be increased and/or current benefits cut or that legislation for either of those two purposes will not encounter very stiff opposition that may stall, if not completely obstruct it. After all, the deficit spending and borrowing options have not yet entirely lost their luster as alternatives to fiscal austerity.

As for the impact of ROUE on trust funds, in the absence of any specification of which kinds of trust funds would be adversely affected and why, the underlying logic and facts to support the claim need to be clarified, since some of the most common kinds of trust funds, e.g., so-called “Totten trust funds”, whose assets are held in a payable-upon-death bank account seem to be unaffected by the hiring decisions and biases of managers. Perhaps education trust funds may be raided by some of the young unemployed who, unable to find a job, choose to invest those funds in additional education and training. But to infer any very broad erosion of trust-fund assets from this kind of phenomenon is going to require some comprehensive employment data and detailed argumentation.

Analyses like the foregoing make it abundantly clear why, despite hopes for and promises of greater transparency, so much modern proposed legislation, e.g.,  in the form of Congressional bills, is presented with so little time for reading it, often with only hours allowed, instead of the required days.

Having too little time to read such bills is only fair when there also isn’t enough time to think when writing them.