Obamacare’s Economic Check-Up

Feb 5 2014 @ 12:08pm

The CBO report released yesterday (pdf) found that found Obamacare will produce “a decline in the number of full-time-equivalent workers of about 2.0 million in 2017, rising to about 2.5 million in 2024.” Waldman puts a positive spin on the news:

The important thing to understand about the reduction in the labor force is that this is exactly what was supposed to happen. When you eliminate “job lock,” where people who’d like to leave their jobs can’t because if they do they won’t have health insurance, a certain number of people are going to take advantage of their newfound mobility. In some cases you might be able to construe it as a loss to the economy, say if a productive full-time worker cuts back to part time because she can. But in many cases it’s something to celebrate: an American exercising their freedom.

Yglesias is on the same page:

Obamacare will kill jobs in the same way that Social Security kills jobs. By making it easier for people in certain circumstances to get by without a job. But your mileage may vary on this. The point, however, is that we’re talking about people quitting not about people getting fired.

Douthat’s worries that Obamacare “might reduce financial hardship while actively disincentivizing upward mobility overall”:

2 million is a much, much uglier number than the 800,000 figure the C.B.O. cited in its last report. Maybe the early estimate was right and this one is wrong, or (just as likely) maybe both are off in one direction or the other. But it does seem like we may be dealing here with something that isn’t just a consequence of rejiggering the employer-provided model, and that actually reflects a more universal dilemma of welfare-state liberalism: Namely, that when the government moves to help people at the bottom of the income distribution, its assistance often creates perverse incentives, both by making it easier for the beneficiaries not to work at all and (when the assistance is means-tested) by imposing a steep marginal tax rate on upward mobility of any kind.

Cohn notes an important detail:

CBO didn’t actually say Obamacare would lead to 2 million fewer jobs. It said that Obamacare would lead to the “equivalent” of 2 million fewer jobs. In reality, CBO expects a much larger group of people to reduce their hours by a much smaller amount. Only a relative few will stop working altogether.

Suderman focuses on the costs of Obamacare:

Taken by themselves, Obamacare’s insurance provisions will increase the deficit by $1.4 trillion. The Affordable Care Act is a sprawling piece of legislation with a variety of revenue mechanisms built in that are supposed to offset the significant cost of the law. But CBO broke out the provisions that are specifically related to the provision of insurance coverage—the cost of the subsidies, the Medicaid expansion, the penalty payments made as a result of the mandate, the tax on high-end coverage, etc.—and found that, over the next 10 years, they will increase the deficit by $1.48 trillion. … This doesn’t mean that Obamacare, as a legislative whole, is now scored as a deficit hike. But it does mean that its central component, the coverage expansion scheme, is.

Greg Ip is unsurprised by the working hours reduction:

This is an unavoidable characteristic of a progressive system of taxes and transfers. As income taxes rise, they become an even bigger disincentive to work and invest; but we accept that distortion as the price of equity. Similarly, means-tested transfers that phase out with income represent high, implicit marginal tax rates and thus disincentives to work. We accept this distortion because it seems preferable to the alternatives: transfers that aren’t means tested, or no transfers at all.

Drum agrees that this is “a shortcoming in all means-tested welfare programs”:

If we simply had a rational national health care system, available to everyone regardless of income, then none of this would be an issue. There might still be a small income effect, but it would probably be barely noticeable. Since everyone would be fully covered no matter what, there would no high effective marginal tax rate on the poor and no reason not to work more hours. Someday we’ll get there.

Avik Roy admits that “any health-reform plan that seeks to offer coverage to the uninsured will have this type of effect on the labor market.” But he still rails against Obamacare:

The negative effect of Obamacare on the labor market is far worse than any Republican alternative would be, because the ACA dramatically expands Medicaid, and because the law heavily subsidizes health insurance for those nearing retirement. In addition, Obamacare depresses economic growth through a $1 trillion tax increase, and increases the cost of hiring new workers, because of its employer mandate requiring most businesses to offer health coverage to every worker.

Barro weighs in:

Broadly, one key goal of health policy should be to let people make work decisions without worrying about how those decisions affect their health insurance. The CBO report shows that Obamacare partly furthers that goal (by making insurance available to more people, regardless of income or employment status) and partly inhibits it (by withdrawing benefits from people who work more). Efforts to optimize the policy should focus on de-linking work decisions from insurance, not simply on maximizing the amount of labor supply.

Barro also notes that fewer workers should mean higher wages:

Obamacare alters the employer-employee relationship in a way that empowers employees. When an employee is dependent on his job not just for a wage but for health insurance, he is less able to threaten to leave if he doesn’t get a raise. Severing the work-insurance link strengthens the employee’s hand in bargaining — which is bad for employers and good for workers.

Cillizza imagines the political consequences of this report:

Close your eyes for a minute and fast forward to October. And imagine yourself sitting in a Charlotte hotel room watching TV. And this ad comes on: “Kay Hagan voted for Obamacare, a law whose rollout was so botched that a million people decided to not even sign up for health coverage. And the non-partisan Congressional Budget Office says Obamacare will cost America 2 million jobs. Kay Hagan voted wrong. Now it’s time to vote her out.” That’s a VERY tough hit on any Democratic incumbent who voted for the Affordable Care Act.