The ACA’s Effect on the Labor Force is Currently Foggy

The Congressional Budget Office reported today that the Affordable Care Act will shrink the American workforce by 2.5 million by 2024, not as a result of employers shedding jobs but because more people will choose not to work or “work fewer hours than they might have otherwise to obtain employer-provided insurance.”

So here’s the spin from both sides: Democrats are saying, “This isn’t bad news! No one should have to work in a job that they don’t want to do just so they can receive health care from their employer. This gives people freedom.” Republicans are saying, “This is bad for the economy, and will encourage workers to make irrational decisions about the benefits of having a job over the long-term.”

At Marginal Revolution, economist Tyler Cowen says he can’t make sense of either argument at the moment:

People, it is rather difficult to have it here both ways. I guess it is possible that workers are irrational in changing their employment decisions in response to changes in relative dollar wage opportunities, but rational when changing their employment decisions in response to changes in relative benefit opportunities. It really is possible. But are any of you actually arguing that or holding some deep-seated reason for believing in that difference, other than perhaps the reason this post might have induced you to come up with? No, I see one assumption about a destructive choice in one context and the opposing assumption about a beneficial choice in the other context, without much regard for the tension or contradiction between those two assumptions. A lot of you may be subbing in general feelings — “unemployment is terrible,” and “ACA is good,” and simply transferring those general feelings to feelings about the respective marginal changes in employment in each case. That is a fallacy and dare I say it is a “mood affiliation” fallacy?

Cowen is waiting for more information and will be examining this as it unfolds, and rather than weighing in now, I will do the same.

Photo: Zoetnet

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6 Comments / Post A Comment

sea ermine (#122)

Based on recent reports there are 3 times as many people looking for work as there are jobs available. If some people are choosing to leave jobs they don’t want to be in wouldn’t that open up more opportunities for people who are currently out of work? Am I completely misunderstanding this scenario?

@sea ermine that’s essentially what Josh Barro argues — see the last point. Delinking insurance from employment makes it easier for people to search for or train for jobs that are better matched to their skills and proclivities, which should increase productivity across the board even if it leads to fewer people working right now.

What’s interesting about this particular argument is that it essentially reverses the traditional left/right talking points on labor markets: the left is saying labor market flexibility is good even if it leads to an uptick in unemployment, while the right is saying people should be locked into low-productivity jobs by intrusive government regulation!

AitchBee (#3,001)

@stuffisthings Wait, what’s the intrusive government regulation?

@AitchBee the system of tax preferences linking health benefits to employment

WayDownSouth (#3,431)

@sea ermine my understanding (limited as it is) is that there are two Obamacare regulations which are driving this behaviour:

1. Any subsidies change to $0 once you get above a certain income. Therefore, to keep the government subsidy, an employee may choose to work fewer hours to stay below this cap. If a person changes from 40 hours to 34 hours per week to reduce her salary, then it’s unlikely that those six hours will be offered to someone else (particularly for smaller companies). So that’s a drop in hours.

2. Companies pay higher taxes if it employs more than 50 full-time workers. From a company point of view, this encourages a company to hire two 20-hours-per-week employees rather than a single 40-hours-per-week employee. It also strongly encourages smaller companies not to expand, since they take a significant financial hit once they hire employee number 51. Again, this reduces the number of hours available to employees.

So both the limit on hours and the limit on employees will contribute to the hours being unfilled.

Kthompson (#1,858)

I’ve seen a lot of {rather hateful} debate about this issue lately, and I’m really not sure what to think about it. Aren’t there people clinging to jobs for health insurance? Doesn’t it make more sense to have your health insurance be independent of your job? I think so. I think people would leave jobs they hate to pursue jobs they would enjoy and flourish in, thus opening up a job for someone else who might like it. Or people could retire or take time off or start a business or something else that might be productive.

I am always amazed that some people on the right think people living on welfare and food stamps have cushy lifestyles. Are there con artists who take advantage of the system? Of course. There are also bank robbers and hackers and illegal campaign contributors and what have you. But the people I know who have been on unemployment have not enjoyed it. It’s not this envious lazy lifestyle that some people portray it as being.

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