Obamacare Leads To Lower Unemployment?

Includes: DRI, PZZA
by: Roger Newman

Now that the campaigns and the election are history, we can turn to the effect that new legislation will have on our economy. I will assume that readers are familiar with the headline number reported by the government for unemployment. Not included in this number are people who are working part-time but would prefer full-time work as well as those who have become too discouraged to look for work. Those two segments are included in the U-6 rate.

Numerous companies, including Papa John's Pizza (NASDAQ:PZZA) and Darden Restaurants (NYSE:DRI) have announced that they will cut workers' hours to avoid the health insurance mandate of Obamacare. I was unable to find estimates of the prevalence of this phenomenon, but it is real. This reduction in workers' hours will not reduce the amount of work that needs to be completed. I believe that this will lead to the hiring of additional part-time workers. These part-time workers will leave the rolls of the unemployed, reducing the headline unemployment rate-- but likely increasing the U-6 number.

The real potential downside of all of these machinations is that I believe household income is likely to continue its downward trajectory. This could be most unfortunate for the economy as families will have less disposable income. Certainly a trend worth watching.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.