Economics 101: Why is it a surprise that businesses would try to reduce operating expenses?

From Donald Douglas:

Progressives Launch Revenge on Applebee’s as Company Downsizes in Response to ObamaCare

Look, I wrote about this yesterday.

The business community’s had the writing on the wall for sometime. The election simply cleared up the uncertainty in the decision-making environment. Gateway Pundit has the video, NY Applebee’s CEO Zane Tankel Says He Won’t Hire Because of Obamacare (Video).

And taking their go-ahead from the Thug-in-Chief, the progressives have launched retaliatory attacks. At London’s Daily Mail, “Calls to boycott Applebee’s after CEO threatens hiring freeze and layoffs over Obamacare.

More at Twitchy, “Applebee’s targeted after franchisee mulls hiring freeze in response to Obamacare,” and “Libs call for boycott of Papa John’s as CEO anticipates cut in workers’ hours.”

Plus, “Insanity: Papa John’s, Olive Garden, others attacked as racist for anticipated responses to Obamacare.”

If our friends on the left want to boycott Applebee’s and Papa John’s, that is certainly their right; it’s their money and they can do with it as they please.1 That leads to the obvious question: what will they do then? They could cook for themselves more, though that would require them to do the dishes and clean the kitchen every once in a while. They might respond by eating out at other franchise restaurants, but those other franchise restaurants will be doing the same thing as Applebee’s, though management might simply keep quiet about it. Or they could respond by dining at small business restaurants, which aren’t part of big chains, restaurants where the ownership has fewer than 50 employees and are not required to sponsor health insurance. The effect is the same: the waiters and busboys and most of the staff won’t have health insurance through their employers.

It might actually be smarter to bombard Applebee’s with business, to make them so busy that the managers have to have the employees there more than thirty hours, but such logic is unlikely to appeal to liberals.

Political candidates who have run businesses before like to use the line that they have “met a payroll” before, a line which tells the voters that they are responsible and understand business. What your Editor would like to see from our friends on the left is some experience in actually planning a budget for a business. I have done parts of that — not a complete budget; that wasn’t my responsibility — before, and the company for which I worked considered health insurance as a fixed cost, but it really wasn’t.2 Fixed costs actually are somewhat variable, in that the number of employees on the payroll can vary, but normally a fixed cost is the dollar amount of a given item per employee, with such being the same for every employee. When it comes to health care coverage, fixed costs can be reduced by having fewer employees who are on the health insurance plan. Given that health insurance can cost an employer over $10,000 a year per employee, it’s not difficult to see how savings can accrue quickly if more employees do not have to be covered.

A simple example: a restaurant needs to cover 400 hours worth of waiter service time. Assuming that the pay rate is the minimum wage of $7.25 per hour, and that the 400 hours can be covered without any overtime pay, total wages are $2880 per week, while the employers’ portion of Social Security and Medicare withholding totals $214.56. Over the course of a year, the employee costs for that 400 hours works out to 160,917.12, not an insignificant cost.

If health insurance costs $10,000 per year per covered employee, the weekly health insurance cost, if the 400 hours are met by ten full-time employees, is $1,932 per week. If, on the other hand, the restaurant can employ 20 waiters, each working 20 hour per week, while wages and taxes would be the same, insurance costs would be zero, and the business saves that $1,932 every week. You don’t think that’s significant? Not having to pay health insurance on ten employees, with an assumed individual cost of $10,000 per employee, is a cool $100,000 subtracted from the costs of doing business, and that’s an additional $100,000 added to the bottom line. For a small business, $100,000 can easily be the difference between profitability and losing money.

Our friends on the left need to see that, and understand that.3 Somehow, I don’t think that they will.
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  1. A statement which they would never make about conservatives’ money!
  2. The cost was fixed in that it was the same for every employee, averaged out between employees who were single and those who needed family coverage. The variable part of the fixed cost, if that makes sense to you, was the total number of employees. However, the total number of employees was based on perceived need, which was itself based on projected volume.
  3. I have simplified this somewhat, but the basics are all there.

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