Killing jobs in the USA with affordable health care

A magnificent paper flagged by Chris M in a comment on the Roundup.


Rarely are political tempers so raw over an 11-page appendix to a dense budget projection for the next decade. But then the CBO—Congress’s official fiscal scorekeeper, widely revered by Democrats and Republicans alike as the gold standard of economic analysis—reported that by 2024 the equivalent of 2.5 million Americans who were otherwise willing and able to work before ObamaCare will work less or not at all as a result of ObamaCare.

As the CBO admits, that’s a “substantially larger” and “considerably higher” subtraction to the labor force than the mere 800,000 the budget office estimated in 2010. The overall level of labor will fall by 1.5% to 2% over the decade, the CBO figures.

Mr. Mulligan’s empirical research puts the best estimate of the contraction at 3%. The CBO still has some of the economics wrong, he said in a phone interview Thursday, “but, boy, it’s a lot better to be off by a factor of two than a factor of six.”

The CBO’s intellectual conversion is all the more notable for accepting Mr. Mulligan’s premise, which is that what economists call “implicit marginal tax rates” in ObamaCare make work less financially valuable for lower-income Americans. Because the insurance subsidies are tied to income and phase out as cash wages rise, some people will have the incentive to remain poorer in order to continue capturing higher benefits. Another way of putting it is that taking away benefits has the same effect as a direct tax, so lower-income workers are discouraged from climbing the income ladder by working harder, logging extra hours, taking a promotion or investing in their future earnings through job training or education.

As Peter Boettke at Coordination Problem likes to remind us, incentives matter!

AND THERE IS MORE. As I understand it, employers will be liable to pay insurance for workers who take on more than a certain number of hours per week (30?). Someone like Mr Mulligan will presumably calculate how much worktime (worker equivalents) is/are eliminated from the economy by that provision. Does anyone in Central Planning know anything about incentives?

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23 Responses to Killing jobs in the USA with affordable health care

  1. entropy

    Look, this is most likely good work, a serious go at explaining the possible and likely consequences of a government action on long term employment, but

    Mr. Mulligan’s empirical research puts the best estimate of the contraction at 3%. The CBO still has some of the economics wrong, he said in a phone interview Thursday, “but, boy, it’s a lot better to be off by a factor of two than a factor of six.”

    Empirical? It’s an effing model. Far to many people mistake model output as the real world these days. Climate scientists are the worst, but economists are vulnerable to suffering this disease as well.

  2. Poor Old Rafe

    Nice point. Actually economists were in the business of making up bad models long before the climate scientists got serious about it. Check out Steve on Keynesian macro modelling!

  3. pseudonym

    Well, the medical profession usually does quite well out of socialised health schemes. The doctors will need cooks, nannies, etc, so perhaps the employment position might not be as bad as the CBO expects. (Sarcasm intended.)

  4. Demosthenes

    if there’s one bottom line to the report, it’s this: It has become much harder for the administration to make the case that the Affordable Care Act has no negative impact on employment at all.

    That they had the gall to claim otherwise is amazing. That said, the title of this post draws a long bow. From the end of that article:

    In his testimony, Elmendorf said that “by providing heavily subsidized health insurance to people with very low income and then withdrawing those subsidies as income rises, the act creates a disincentive for people to work—relative to what would have been the case in the absence of that act.” At the same time, he said, those subsidies do help — they “make those lower-income people better off.”

    But that’s the part where Republicans like Ryan say the law collides with an important goal: encouraging a work ethic and upward mobility.

    “I understand the better off in the context of health care. But better off in inducing the person not to work who was on the low-income scale, not to get on the ladder of life, to begin working, getting the dignity of work, getting more opportunities, rising their income, joining the middle class, this means fewer people will do that,” Ryan said. “That’s why I am troubled by this.”

    Administration officials aren’t convinced that’s a winning argument for Republicans, though. They think it has a good chance of sounding insulting — because voters won’t like to be told they don’t have a work ethic.

    They also don’t think the Republicans can sustain an argument that people should be outraged if working parents cut back a bit so they can spend more time with their kids, or older people can retire a bit earlier.

    Even some conservative writers warn that Republicans shouldn’t dismiss the importance of ending “job lock,” where people feel stuck in a job just because they need the health coverage. “Republicans have been arguing for years that the hard linkage between employment and health insurance is a mistake … And Republicans have been offering ways to fix the problem for years,” Jonah Goldberg wrote in National Review. “There’s no point in suddenly shouting that ‘job-lock’ isn’t a problem.”

    Once again, though, that’s only one side of a complicated CBO report — and it may not be enough to win the argument.

    “It’s not necessarily a bad thing if people don’t want to work in the jobs they have, or rearrange their work hours to fit their lives better,” said Zandi. “[But] I don’t know that it’s necessarily a good thing if lower income people pull back on their work hours because they’re about to hit a point where they lose their health subsidies.”

  5. Ant

    I recall Obama saying that conservatives won’t be calling Obamacare “Obamacare” when it starts running like a Swiss watch.

    Wishful thinking from the imperial idiot.

  6. Samuel J

    Just bring in Wayne Swan and he will fix it up. After all, he claimed to be Mr EMTR (Effective Marginal Tax Rate).

  7. 2dogs

    This aspect of Obamacare may turn out okay.

    It will mean a lot of jobs become part-time, e.g. three days a week.

    There would hopefully be an associated decline in unemployment (but not underemployment) as available jobs become shared between more people.

    Those needing more income will take on two such jobs. This will reduce their risk as, as it is unlikely they will only lose both jobs at the same time through misfortune.

    There are far worse aspects to Obamacare, like the ban on refusing pre-existing conditions, which may yet mean bankruptcy for otherwise good insurers.

  8. Andrew

    Yes, that’s true and you wouldn’t script it because it’s too far fetched. Your employer isn’t stung for your healthcare if you only work 29 hours a week. And guess what casual workers are now rostered?

    Can there ever have been a more economically damaging policy? (Oh, right – the carbon tax! Nearly forgot about that one. And the open borders at $500k lifetime charge x 50,000. And I almost forgot the Fair Work Act. And the mining tax…)

  9. Jim Rose

    Mulligan was widely criticised by the keynesian establishment for his analysis when first published

  10. Notafan

    It also discourages employers from growing their business as they look to keep employees to under 50 FTE.
    The US model looks a lot like a social welfare transfer system. I also have read that some doctors in general practice are moving out of the health insurance web altogether. They can offer significantly lower prices without the additional admin costs operating like a regular business. With the enormous deductibles of several thousand dollars paying cash for regular GP visits might make sense.

  11. .

    Obama legislated a poverty trap as a “great social policy” and “fundamental economic reform” that will “run like clockwork”.

    He’s the prime example of why we shouldn’t have affirmative action, race based politics or a requirement that people work for 5-10 years in the private sector before they can tilt at public office.

  12. Anyone with a condition needing expensive treatment will be unlikely to seek work or work more hours too I guess. Even giving up work may be better.

  13. Steve of Glasshouse

    Things will get better when the Obama train wreck hits 88 mph

  14. Michaelc58

    I employ 5 people in my small US office.
    My strong impression from interviewing applicants before ObamaCare, was that having a job, any job was critical to having access to good health care through the power of an employer’s plan, and even more so if you needed expensive medications.
    Employment gave a large non-salary benefit or perhaps a reverse marginal tax.
    Now it’s the opposite.
    You can argue whether it is morally right for people to have to work to have good health care, but you can’t lie about the true cost of removing such incentives to work, which could even result in an even worse healthcare for all, if productivity falls substantially.

  15. entropy

    Things will get better when the Obama train wreck hits 88 mph

    Somehow I don’t think Obama is made of stainless steel, although I guess with those ears he does have a faint resemblance to a Delorean.

  16. .

    Well…my guess is we’re gonna see some serious shit!

  17. Chris M

    Michaelc58 does the US unemployment benefit or whatever they call it still cut out after a set period, 5 years max I think it was? Or is it now ‘dole for life’ like here?

  18. Jim Rose

    Milligan showed courage.

    David card stopped working on the minimum wage because people were so unpleasant to him.

    The economics of global warming is equally unwelcoming

  19. Zatara

    Chris M, before Obama and his magic pen unemployment benefits in the US were limited to 6 months on average (Unemployment compensation is, or used to be, a State issue).

    But how he managed to change Federal and State Law by Imperial Fiat is fodder for another rant.

    They are now into their 6th straight year of “extensions”, meaning some people have been sitting out of the workforce without even the pretense of looking for a job for that long. One hopes that whatever job skills they might have had aren’t perishable.

    However, what do they care? They frankly are doing better now under the entitlement give-a-way system than they were while working. So why worry when “Obama gonna take care of it, give me Obama phone, I’ll never have to worry about a job or paying bills again, etc”…….!

  20. Jim Rose

    Some of Mulligan’s critics dismissed his ideas as a great vacation theory of the great recession.

    Unoriginal: In the late 1970s, Modigliani dismissed the 1969 Lucas-Rapping paper on the U.S. great depression as the great vacation theory of depressions. The voluntary unemployment of the 1930s is explained, in Modigliani words, as a congenital attack of laziness.

    As Prescott pointed out in papers in 2002, 2004 and 1999, the USA in the Great Depression and France since the 1970s were both 30% drops in hours worked per adult. That is why Prescott refers to France’s economy as depressed.

    Blanchard attribute lower labour force participation in the EU since the 1970s to their greater preference for leisure

    A unusual left-right unity ticket has emerged to explain depressions in the 1930s and the depressed EU economies: the great vacation theory.

    labour supply dropped by 25% to 35% in the EU as their taxes rose since the 1970s.

    In reality, time use studies conclude that lower hours of market work in Europe is entirely offset by higher hours of home production, implying that Europeans do not enjoy more leisure than Americans despite the widespread impression that they do.

  21. Brian of Moorabbin

    As I noted yesterday in the OT, Tammy Bruce also pointed out the following with regard to the CBO pointing out the 2.5million job losses:

    Then the latest gem from this week: The Congressional Budget Office issued a report stating that Obamacare will, as Forbes puts it, “drive 2.5 million Americans out of the workforce,” essentially disincentivizing work.

    Running immediately into the fray with buckets of water and rhetoric on behalf of the White House, The New York Times offered up an editorial that actually declared this disaster a “good thing” and is “liberating” people from their work. You know what else would be “liberating”? All New York Times employees being “freed” from their work.

    Jason Furman, the White House economic adviser, actually noted that these 2.5 million people were “a small percentage of the economy.” This shouldn’t be a surprise; it’s what happens when the leftist bureaucratic machine mistake people for the budget. You are no longer an individual, you are a number on a piece of paper, and an expendable one at that.

  22. Mike P

    but, but, but I just watched Paul Krugman on Colbert and he explained to silly old me this is just folks (mainly the old and infirm) choosing health care over working more hours so it is a good thing. Nothing to worry about here.

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