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The Beacon Hill Report - March 20, 2014

Author: Bill Vernon Date: March 19, 2014

House Plan to Raise Minimum Wage and Reform UI Unveiled

With the committee putting Speaker DeLeo’s plan to raise the minimum wage into formal legislative language this week, the House of Representatives will likely consider increasing the minimum wage to $10.50 over the next two plus years – a 30% increase -- very soon. The House version appears to be better than the Senate plan in that future increases in the minimum wage would not be tied to inflation and future legislators would be forced to consider current economic conditions when increasing the minimum wage.

In addition, the Speaker’s insistence on tying any increase in the minimum wage to reforms to the state’s Unemployment Insurance system to reduce costs for employers is encouraging. But in the end, the impact on small business owners in certain industries from raising labor costs will force small businesses to make difficult hiring decisions.

Because the proposed changes in the Unemployment Insurance reforms fail to address the underlying problems with the system, they cannot offset the substantial increase in labor costs imposed by the much higher minimum wage. A recent study by the nonpartisan Congressional Budget Office predicted more than half a million job losses nationally as the result of a federal bill that would raise the minimum wage to $10.10 per hour. Since all versions under consideration on Beacon Hill are more aggressive than the federal plan, job losses would be at least as severe in Massachusetts and job creation will be slower here.

Small businesses in certain industries cannot count on a big increase in sales to accommodate higher labor costs will find a way to reduce employment. They’ll eliminate positions, lay off workers, cut their hours and look for ways to automate jobs to reduce their need for employees. That is the way the economy works.

It is like a broken record for Massachusetts’ small business owners but yet another study has concluded that health care costs in Massachusetts – the highest in the world – are in crisis and need to be addressed.

The study conducted by the Healthcare Equality and Affordability League states that persistent disparities in healthcare financing have created an unsustainable system of significant annual increases in healthcare premiums for middle-class and lower income populations and communities.

The study looks at public policies, regulations and market dynamics that create and worsen the

disparities and results over time. Since Medicaid reimburses health care providers at rates below market rates, the study calls for the equalization of government reimbursements among hospitals and increased Medicaid reimbursements to hospitals that serve a high percentage of Medicaid patients, typically community hospitals. The study also urges insurance companies to offer lower premium health plans that reward employers and workers who use cost-effective providers.

In other words, apply some free market forces, competition and transparency to price and quality to drive consumer choice and to reduce costs and premiums. What a surprise!       

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