Employee Benefits Strategies

IMPACT OF EMPLOYER-PROVIDED BENEFIT PROGRAMS

Employer Responsibility

Benefit programs greatly increase the responsibility of employing organizations. Underlying membership rewards is the assumption that the organization desires long-term employment and will provide it. This commitment can reduce the ability of the organization to adapt to changing circumstances. In addition, with the constant increase in benefit costs, the organization must be even more careful when hiring additional employees. As pointed out, some organizatons prefer having part-time and temporary employees for some jobs because the commitment required to having full-time employees is so great.

Union Negotiations

Benefits program decisions also increase the responsibilities of unions. With each additional benefit, union responsibility to its members is increased. The unions must make sure that they maintain the benefits they bargained for. More serious for unions is the fact that large benefit programs put unionized organizations at a competitive disadvantage. Over the past several years this has taken on an international scope, as American organizations have had trouble competing with foreign companies. Some have chosen to move operations overseas where there are fewer regulations and lower labor costs.

Economic Effects

The high cost of benefits impacts the entire U.S. economy. The U.S. method of providing benefits by private means may have reduced its ability to compete in foreign markets. Other industrialized nations have equal or higher benefits, but they are paid in large part by employee taxes, not by employers. Also, these countries appear to use a more selective approach of granting benefits only to those who need them rather than the more general approach taken in the United States. The high cost of benefits is one reason employers give for holding off hiring needed employees.

Rising Inflation

Benefits decisions can also harm price stability. When total compensation gains exceed productivity gains in the economy, inflation is the consequence. Benefit costs are often not given their full weight in calculating total compensation and so they have a hidden inflationary tendency.

Chronic Unemployment

Benefit decisions have different effects upon employment:

• The first is to encourage organizations to ask employees to work overtime, since this doesn't significantly increase benefit costs. The effect of this, of course, is to lower the number of employees needed.
• The second effect is to encourage organizations to hire part-time and temporary employees to whom the organization does not have to pay benefits.

Beginning in the mid-1990s, outsourcing gained strength in America as companies used staffing company employees to complete assignments.

Social Effects

Protections from insecurity provided through employment may have weakened community efforts to stimulate citizen participation in programs designed to provide group protection. In order to be protected, one must be employed. But it's when one is not employed that there is the greatest need. Also, when one is unemployed due to illness or injury, the cost of care and coverage is much higher than the average.