Two boring stories really caught my attention this week. First, there was a report about a miserly practice by AOL (and, apparently, by many other firms) regarding 401k plans. Second, the kerfuffle that emerged over the possible impact of the Affordable Care Act on joblessness in the U.S. illustrates an example of how what's politically wise isn't the same as what is economically wise.
Let me address the latter of these topics: Despite its shortcomings, the ACA (or any health coverage reform) could win me over if it made labor markets more flexible. There are people who settle for miserable jobs because they're afraid leaving that job means leaving guaranteed medical coverage. Severing employment and health coverage could do us quite a bit of good, though it's a very tough institutional practice for this country to get over. The White House's retort to the CBO report, that the ACA might diminish job lock, and therefore might actually increase unemployment and underemployment makes economic sense. I could see these reforms allowing more Americans to work part-time and afford the lifestyle they want, or even to put up with short-term periods of unemployment and afford the lifestyle they want. I'm mangling my thoughts on this topic, and if I'm mangling it, how could politicians spin it?
The 401k lump sum match practice that is becoming more common has me really bothered. It's obvious to me how it cuts costs for a company, how it penalizes workers for leaving mid-year, and how it penalizes workers who stay throughout the year (in foresaken compounding interest). I could get behind a law requiring companies to make 401k matches on a monthly or quarterly basis, despite my misgivings about regulating business practices. That's how counter-productive I find the lump sum 401k match practice to be.
Ironically, I signed on to a career that is characterized by job lock. Public school teachers usually get locked in place after a half dozen years with one employer. I've been employed by the same district for more than 15 years: I'm prohibitively expensive for another district to hire. If I'm going to find a new job, it will be up or out, not over to another teaching gig somewhere else. I've accepted the golden handcuffs because it's the rigidity of my profession is part of a set of tradeoffs that allows me to do a job I love but still satisfactorily support my family.
People in the private sector didn't sign up for that deal.
The participants in our private sector labor force benefit from a market that offers fluidity. Workers benefit from a system that allows them to be free to look at other jobs. Employers benefit from a system that disincentivizes unhappy workers from sticking around due to job lock. This lump sum practice might just be an example of employers cutting their noses to spite their face.