Human Services

Study: ACA to shrink labor market more than previously thought

In a new working paper from the Mercatus Center, University of Chicago economist Casey Mulligan projects that the Affordable Care Act will reduce weekly employment per person by 3 percent, or roughly 4 million full-time-equivalent workers. These new estimates are significantly higher than the 2.5 million reduction in labor supply estimated by the Congressional Budget Office earlier this year.

To be clear, a reduction in labor supply differs from a reduction in labor demand—a distinction many failed to recognize when the CBO first released estimates. It is not the case that the ACA will necessarily forces employees out; rather, the ACA’s disincentives to work will cause some employees to voluntarily reduce hours, and in aggregate, will reduce employment by 4 million full-time-equivalent workers. As Mulligan puts it:

Before the ACA, people found health insurance to be less expensive when employed than it was when not working, and health insurance expenses were one reason why unemployed people have been eager to get back to working in a position with coverage. But the ACA reverses the calculus by giving people who do not work more opportunities for subsidized coverage than employed people will have.

As has been noted previously, proponents of the ACA have defended similar findings from the CBO by arguing that more Americans would be able to pursue their dreams. Mulligan, whose work the CBO relied on, dismissed such claims—“I don’t know what their intentions are, but it looks like they’re trying to leverage the lack of economic education in the audience by making these sort of points.” CBO Director Douglas Elmendorf has acknowledged in testimony that the ACA’s disincentives to work are harmful to economic growth and will reduce GDP.

A summary of key findings from Mulligan’s latest paper can be found below.

  • The ACA’s employment taxes create strong incentives to work less. The health subsidies’ structure will put millions in a position in which working part time (29 hours or fewer, as defined by the ACA) will yield more disposable income than working their normal full-time schedule.
  • The reduction in weekly employment due to these ACA disincentives is estimated to be about 3 percent, or about 4 million fewer full-time-equivalent workers. This is the aggregate result of the law’s employment disincentives, and is nearly double the impact most recently estimated by the Congressional Budget Office.
  • Nearly half of American workers will be affected by at least one of the ACA’s employment taxes—and this does not account for the indirect effect on others as the labor market adjusts.
  • The ACA will push more women than men into part-time work. Because a greater percentage of women work just above 30 hours per week, it is women who will be more likely to drop to part-time work as defined by the ACA.

To read the full report, visit http://mercatus.org/sites/default/files/Mulligan-ACA-Part-TimeWork.pdf.

Mulligan-ACA-Employment-infographic


In Depth: Human Services

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