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When Job Loss Helps the Economy Grow

It's a good thing when employees feel free to seek better work or start a business.

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One of the great tragedies of our employer-based system of health care is that it traps people in jobs that don’t fit them well. Millions of Americans who would like to start their own business or freelance have been unable to do so because they had no cost-effective way to maintain health care coverage during the transition. This phenomenon, called “job-lock,” keeps people in the wrong job. It holds back economic growth, and it deprives America of much-needed entrepreneurial energy and innovation. And it is the cause of great unhappiness and frustration for those affected.

This week, a new report from the Congressional Budget Office shed some light on the magnitude of job lock, and showed how Obamacare – the Affordable Care Act – will help address it. The report projected that up to 2.5 million Americans will change jobs or voluntarily leave the work force, now that Obamacare gives people an affordable way to get coverage other than through an employer.

Of course, critics of the ACA seized on the projections, claiming that the ACA is wrecking the economy. But a close look at the report shows that the criticism is based on a deliberate misreading of the data. Critics have said that the ACA will restrict economic growth by raising the costs of the employment. However the CBO’s report contradicts this claim. In fact, the CBO says that some employers might change their mix of part-time and full-time employees, but this would not change the total number of hours worked.

[See a collection of political cartoons on Obamacare.

On the contrary, most of the projected changes will come from people voluntarily leaving jobs they don’t want. Some of these people are the second wage earners in their families who would rather work fewer hours if they can do so without losing insurance coverage. Some of these are people near the retirement age who want less stress and are willing to take less money. But probably the greatest share of those affected are people who are starting businesses or changing careers, and who need insurance coverage as they build a business or embark on the time-consuming path to find work in a new field.

The Affordable Care Act and the end of job-lock will be a tremendous boon to micro-enterprise, which includes firms that have five or fewer employees and are started for $50,000 or less in initial investment. According to the California Association for Micro Enterprise Opportunity, these businesses account for nearly 25 percent of all jobs in the U.S. economy. Together, micro enterprises represent roughly 17 percent of U.S. GDP. Micro enterprise includes small scale services businesses like cleaning services, laundry, yard work, tailoring, tax preparation and other professional services. For many Americans, micro enterprise offers better economic prospects than seeking traditional employment, particular in parts of the country where the primary employers have downsized or closed up shop. It is a particularly important path to economic self-sufficiency for women and people from disadvantaged backgrounds who bring a strong work ethic but limited formal education.

Unfortunately, prospective micro entrepreneurs are held back by structural barriers in the economy. One of these – until now – was the inability to get affordable health insurance while starting a small business. Another barrier, which still needs to be addressed, lies in the rules regarding unemployment insurance. A person who has lost a job and is collecting unemployment is not allowed to use their unemployment coverage as they start a business. 

[See a collection of political cartoons on the economy.

It’s no secret that job growth of the traditional kind has lagged badly in the current recovery. Even as corporate profits have soared and stock market has set new records, a combination of outsourcing, off-shoring and automation has suppressed job growth. New hiring of the traditional kind – full time, W2 employment – barely keeps up with population growth. New hiring has not been sufficient to reabsorb all those who lost jobs in the last recession. As a result, it’s more important than ever that we encourage micro enterprise, freelancing and other forms of economically productive activity. By ending job-lock, the Affordable Care Act takes an important step in this direction, and we should welcome the disruption it brings to the labor markets.