Obamacare and Employment

The media cheered a report published by the Urban Institute and the Robert Wood Johnson Foundation, which asserts that Obamacare (“the ACA”) does not explain the high proportion of part-time workers:

This increase in part-time work is fully attributable to an increase in involuntary part-time work. The increase in involuntary part-time work, however, is not specific to the category of part-time work defined by the ACA (i.e., less than 30 hours per week), but applies to part-time work more broadly (also between 30 and 34 hours per week). Moreover, transitions between full-time and part-time work in 2014 are in line with historic patterns. These findings suggest that the increase in part-time work in 2014 is not ACA related, but more likely due to a slower than normal recovery of full-time jobs following the Great Recession.

Perhaps we should celebrate this conclusion from Obamacare’s supporters. Previously, some cheered the theory that Obamacare, which expands Medicaid eligibility and heavily subsidizes health insurance for middle income households, would lead people to voluntarily reduce their working hours. In 2010, then Speaker Nancy Pelosi encouraged people who wanted to be musicians, for example, to quit their jobs and focus on their (as yet undiscovered) talents, because taxpayers would underwrite their health coverage.

This approach was endorsed in the Congressional Budget Office’s conclusion that Obamacare would reduce employment by 1.5 percent in 2017 and 2.0 percent in 2024 (amounting to 2 million to 2.5 million jobs). As the CBO summarized its conclusion: “Also, the ACA’s subsidies effectively boost the income of recipients, which will lead some of them to decide they can work less and still maintain or improve their standard of living.”

Four years after Obamacare passed, there is no noticeable trend in the number of musicians and artists indicating that there will be two million more of them in three years. So, it seems that the Urban Institute is right and the CBO is not: The reduction in working hours is involuntary, not voluntary. This is a testament to the American people’s work ethic, but not an endorsement of Obamacare.

What about the observation that the part-time workers who were cut back to 30 to 34 hours a week suffered the same loss of working hours as those cut back to fewer than thirty hours a week? The employer mandate to offer “affordable” health benefits applies to full-time workers, and Obamacare defines full time as thirty hours. The federal government has not previously defined “full-time”, although forty hours is traditionally understood.

So, cutting a worker from 32 hours to 28 hours, for example, exempts the employer from the mandate, but cutting a worker from 36 hours to 32 hours does not. First, current data is largely irrelevant to this argument, because the employer mandate has been delayed (although there is a “look-back” period that might have some impact). Even if the employer mandate had been imposed on schedule this year, employers look at health benefits as one piece of compensation. Employers would be free to pay the costs of the mandatory health coverage and fund it by cutting back workers’ hours.

It would simply be a change in the mix of compensation, with some deadweight loss. (We can reasonably infer deadweight loss because if the affected workers had wanted smaller paychecks in exchange for more expensive health benefits, they would have sought out such jobs.)

Meanwhile, employers themselves continue to tell us that they are cutting employment in response to Obamacare. This is the clear message of two recent surveys by the New York Fed and the Philadelphia Fed.

Just last week, the American Health Policy Institute, which is affiliated with large employers, published a report on The Health Care Employment Squeeze, which identified rising employer-based health costs as squeezing job growth:

The recent persistent lag in the U.S. labor force participation rate suggests that the U.S. economy must make additional strides in order to create sufficient levels of both supply and demand for labor. Unfortunately, the Health Care Employment Squeeze — the pressures health care imposes on both the supply and the demand for labor — is making it difficult to get the U.S. labor force participation rate back on track and in line with expected patterns of economic recovery.

The Urban Institute and Robert Wood Johnson foundation believe the terrible employment picture is “not ACA related, but more likely due to a slower than normal recovery.” What they fail to grasp is that the slower than normal recovery is caused by Obamacare.

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