The new  problem-plagued health reform website, healthcare.gov, was defended by President Barack Obama on Monday. (Karen Bleier/AFP/Getty Images)

Why It's Wrong to Say Obamacare Kills Jobs

The myth just keeps on living.

The new  problem-plagued health reform website, healthcare.gov, was defended by President Barack Obama on Monday. (Karen Bleier/AFP/Getty Images)

Not actually a job killer.

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“Obamacare is a job killer.”  That’s the Republican spin on an updated Congressional Budget Office analysis of the labor market effects of the Affordable Care Act. But CBO reached no such conclusion.

Instead, the non-partisan budget agency said:  “[T]he ACA will reduce the total number of hours worked” by an amount equivalent to 2.5 million full-time workers in 2024 — “almost entirely because workers will choose to supply less labor.”  Moreover, “the decline in full-time-equivalent employment … will consist of some people not being employed at all and other people working fewer hours.”

In other words, the number of hours worked will fall not because the ACA will so greatly burden employers that they won’t want to hire as many workers. Instead, workers who gain access to affordable health care that’s not tied to a particular job will reassess their decisions about where, whether and how much to work in complicated ways that, on balance, will reduce the total number of hours worked. CBO judges, however, that these effects “will be most evident in some segments of the workforce and will be small or negligible for most categories of workers.”

[See a collection of political cartoons on Obamacare.]

CBO projects that by 2017 the job market will have emerged from its slump and be operating normally. Jobs will be available for those who want them and the probability of finding a job will be largely unaffected by the ACA and much higher than now.

The ACA will have little effect on either unemployment or underemployment (people working part-time because they can’t find full-time work). The ACA will, however, reduce the labor force participation rate (the percentage of the population working or actively looking for work) and total hours worked.

In many cases, the ACA gives workers more flexibility about when and how much they work. Access to affordable health care could allow a single mom working long hours to make ends meet cut back on those hours and be home for dinner with her kids or be there in the morning to send them to school. Similarly, it would allow one member of a two-earner family to take time off from the workforce to address a family emergency or go back to school to improve his or her skills without worrying about losing access to health insurance. 

Wait a minute, say some more thoughtful conservatives; we should acknowledge that, along with making it more financially feasible to stay home with the kids, some ACA provisions can, for some people, reduce the financial rewards from taking a second job or working longer hours to earn extra income. In effect, those provisions “tax” the earnings from labor and can discourage people from supplying as much labor as they would without the “tax.”

[See a collection of political cartoons on the economy.]

One group that the ACA would likely affect in this way, CBO says, are low-and moderate-income households that receive subsidies to help them purchase insurance through the ACA’s marketplaces (rather than from their employer). As CBO notes, the phase-out of the subsidies affects net income similarly to a direct tax on earnings, and will likely have similar effects on labor supply.

All else being equal, policymakers should want to keep any adverse effects on labor supply from marginal tax rates as small as possible.  But all else is seldom equal and, in this case, policymakers face well-known and inherent trade-offs in designing income-based financial assistance programs.

To reduce the implicit tax on earnings from a phase-out, policymakers would have to extend it farther up the income scale — but that would add significantly to its costs. We could reduce those costs by reducing the base benefit for those with the greatest need, but that would defeat the main purpose of the subsidies in the first place.

Republicans are way off base when they claim that CBO finds the ACA to be a job-killer. And railing against work disincentives isn’t worth much if you don’t have a more attractive alternative to offer.