Leading Republicans, along with much of the media, went into a frenzy last week following the release of a Congressional Budget Office (CBO) report on the Affordable Care Act (ACA). The report assessed the likely impact of the ACA on employment and concluded it will lead to a reduction in the total number of hours worked by 1.5-2.0 percent when its effects are fully felt later in the decade.
This reduction in hours is equivalent to 2.0-2.5 million fewer people working. This was quickly translated into a loss of 2.0-2.5 million jobs, which made Obamacare officially a jobs-killer in the eyes of the CBO. That’s pretty powerful stuff, but it turns reality on its head.
The CBO assessment was that because people could now get access to health insurance through the exchanges rather than having to get insurance through their jobs, many people might decide not to work or to work fewer hours. This voluntary reduction in work hours is one of the goals of Obamacare, it is not an unforeseen consequence.
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There are millions of people who struggle at their jobs with serious health conditions in the hope of reaching age 65 when they can qualify for Medicare. The exchanges will make it possible for many of these people to get insurance at prices they can afford, since insurers are not allowed to discriminate based on pre-existing conditions. As a result, some of these older workers will opt to either retire or to possible work fewer hours at a job that doesn’t provide insurance. Giving people this option was one of the main goals of health care reform.
Similarly, there are many workers with young children who would like to be able to either take time off from work to spend with their kids, or alternatively to work at a job part-time. However they may not have this option if their only way to afford insurance is by working at a full-time job. As a result of the ACA these people will work fewer hours.
This also was also one of the goals of Obamacare. Advocates of health care reform thought it would be good if the parents of young children had the opportunity to work less to be with their kids, if that is what they choose to do.
When CBO did its analysis and said that Obamacare would lead to some reduction in work hours, it was saying the ACA would have its intended effect. It was freeing people from health care related job-lock. This is a feature, not a bug.
It’s remarkable that so many people could have reached the direct opposite conclusion. Of course almost any measure that protects workers will have some negative impact on people’s willingness to work. If we eliminated Medicare and made older people pay for their health care then we could get more people to work into their 70s, 80s, even 90s. Wouldn’t that be great?
In fact, the withdrawal of people from the labor market would likely have a positive effect on those who want to work. At a time where we still have millions of people unemployed or underemployed, the people who retire or cut back hours to be with kids will be opening up jobs for younger workers unable to find work or full-time jobs. Since we have a Congress that is unwilling to take the steps to increase demand in the labor market, the best way we may have of increasing job openings is by reducing supply.
The reduction in labor supply is also likely to have a positive impact on wages. In fact, the CBO numbers implied that wages would on average increase as a result of the ACA. While it projected hours worked would fall by between 1.5-2.0 percent, it expects that compensation will only fall by 1.0 percent. This implies an increase of 0.5-1.0 percent in average hourly compensation.
Part of this rise in compensation could be a composition effect. If we take the lowest paid workers out of the labor market, then average wages of those remaining will rise. However part of the story is simple supply and demand, if we reduce the supply of labor because more people choose not to work, then we would expect the price of labor to rise. That is the sort of story we should expect to see as a result of the ACA.
So the takeaway from the CBO report is overwhelmingly positive. People who had been locked into jobs because it was the only way they could get health insurance will no longer have to work as much. This will open up jobs for other workers and lead to somewhat higher pay in general. The only people it’s bad for are those who have made a political career out of opposing Obamacare and those who want cheap help.