The Volokh Conspiracy - Administration Says Wage Reductions Violate Recovery Act.

President Obama campaigned on cutting soaring medical costs. So what happened when the state of California cut the state's contribution to the wages of home medical care workers from a maximum of $12.10 per hour to a maximum of $10.10?

SEIU, the powerful union that has been closest to Obama and is the parent union of ACORN, asked the Federal government to stop the cost-cutting. And that's just what the administration is trying to do:

The Obama administration is threatening to rescind billions of dollars in federal stimulus money if Gov. Arnold Schwarzenegger and state lawmakers do not restore wage cuts to unionized home healthcare workers approved in February as part of the [California] budget.

Schwarzenegger's office was advised this week by federal health officials that the wage reduction, which will save California $74 million, violates provisions of the American Recovery and Reinvestment Act. Failure to revoke the scheduled wage cut before it takes effect July 1 could cost California $6.8 billion in stimulus money, according to state officials. . . .

The wages at issue involve workers who care for some 440,000 low-income disabled and elderly Californians. The workers, who collectively contribute millions of dollars in dues each month to the influential Service Employees International Union and the United Domestic Workers, will see the state's contribution to their wages cut from a maximum of $12.10 per hour to a maximum of $10.10.

The SEIU said in a statement that it had asked the Obama administration for the ruling. . . .

Schwarzenegger on Wednesday sent U.S. Secretary of Health and Human Services Kathleen Sebelius a letter urging the federal government to reconsider.

"Neither the Legislature nor I make decisions to reduce wages or benefits lightly, but only as a last resort in response to an unprecedented fiscal crisis," Schwarzenegger wrote.

Of course, if the proposed cuts lead to more institutionalization, it is possible that the cuts in wage subsidies for home workers could increase medical costs overall.

One of the reasons that the Great Depression in the 1930s lasted so long is that FDR was successful in keeping wages above the market-clearing wage. The downward stickiness of wages is one of the main causes of unemployment in a recession. If the 2009 Recovery Act actually does prevent wages from dropping to the point where people will be hired, then it would be another example of how the Recovery Act tends to prevent recovery rather than promote it.

	[Jim Lindgren, May 8, 2009 at 12:45pm] Trackbacks Administration Says Wage Reductions Violate Recovery Act. President Obama campaigned on cutting soaring medical costs. So what happened when the state of California cut the state's contribution to the wages of home medical care workers from a maximum of $12.10 per hour to a maximum of $10.10? SEIU, the powerful union that has been closest to Obama and is the parent union of ACORN, asked the Federal government to stop the cost-cutting. And that's just what the administration is trying to do: The Obama administration is threatening to rescind billions of dollars in federal stimulus money if Gov. Arnold Schwarzenegger and state lawmakers do not restore wage cuts to unionized home healthcare workers approved in February as part of the [California] budget. Schwarzenegger's office was advised this week by federal health officials that the wage reduction, which will save California $74 million, violates provisions of the American Recovery and Reinvestment Act. Failure to revoke the scheduled wage cut before it takes effect July 1 could cost California $6.8 billion in stimulus money, according to state officials. . . . The wages at issue involve workers who care for some 440,000 low-income disabled and elderly Californians. The workers, who collectively contribute millions of dollars in dues each month to the influential Service Employees International Union and the United Domestic Workers, will see the state's contribution to their wages cut from a maximum of $12.10 per hour to a maximum of $10.10. The SEIU said in a statement that it had asked the Obama administration for the ruling. . . . Schwarzenegger on Wednesday sent U.S. Secretary of Health and Human Services Kathleen Sebelius a letter urging the federal government to reconsider. "Neither the Legislature nor I make decisions to reduce wages or benefits lightly, but only as a last resort in response to an unprecedented fiscal crisis," Schwarzenegger wrote. Of course, if the proposed cuts lead to more institutionalization, it is possible that the cuts in wage subsidies for home workers could increase medical costs overall. One of the reasons that the Great Depression in the 1930s lasted so long is that FDR was successful in keeping wages above the market-clearing wage. The downward stickiness of wages is one of the main causes of unemployment in a recession. If the 2009 Recovery Act actually does prevent wages from dropping to the point where people will be hired, then it would be another example of how the Recovery Act tends to prevent recovery rather than promote it.