Obamacare and employment

Obamacare is going to cost 2.5 million jobs!!!! See:

The reduction in CBO’s projections of hours worked represents a decline in the number of full-time-equivalent workers of about 2.0 million in 2017, rising to about 2.5 million in 2024. Although CBO projects that total employment (and compensation) will increase over the coming decade, that increase will be smaller than it would have been in the absence of the ACA. The decline in fulltime- equivalent employment stemming from the ACA will consist of some people not being employed at all and other people working fewer hours; however, CBO has not tried to quantify those two components of the overall effect. The estimated reduction stems almost entirely from a net decline in the amount of labor that workers choose to supply, rather than from a net drop in businesses’ demand for labor, so it will appear almost entirely as a reduction in labor force participation and in hours worked relative to what would have occurred otherwise rather than as an increase in unemployment (that is, more workers seeking but not finding jobs) or underemployment (such as part-time workers who would prefer to work more hours per week).

Oh wait, that’s just saying that some people will voluntarily work fewer hours. I’m sure Republicans won’t try to spin this as it actually costing millions of jobs. Ha, ha silly me:

“For years, Republicans have said that the president’s health care law creates uncertainty for small businesses, hurts take-home pay and makes it harder to invest in new workers,” Speaker John A. Boehner said. “The middle class is getting squeezed in this economy, and this C.B.O. report confirms that Obamacare is making it worse.”

The report basically says absolutely nothing about Obamacare affecting the middle class, which is why Boehner says it does. This is the type of thing I read Kevin Drum for:

If, for example, earning $100 in additional income means a $25 reduction in Obamacare subsidies, you’re only getting $75 for your extra work. At the margins, some people will decide that’s not worth it, so they’ll forego working extra hours. That’s the substitution effect. In addition, low-income workers covered by Obamacare will have lower medical bills. This makes them less desperate for additional money, and might also cause them to forego working extra hours. That’s the income effect.

This is not something specific to Obamacare. It’s a shortcoming in all means-tested welfare programs. It’s basically Welfare 101, and in over half a century, no one has really figured out how to get around it. It’s something you just have to accept if you support safety net programs for the poor.

It’s worth noting, however, that health care is an exception to this rule. It doesn’t have to be means tested. If we simply had a rational national health care system, available to everyone regardless of income, then none of this would be an issue. There might still be a small income effect, but it would probably be barely noticeable. Since everyone would be fully covered no matter what, there would no high effective marginal tax rate on the poor and no reason not to work more hours. Someday we’ll get there.

He actually explains what’s going on. Also notice that, as he says, this is another reason for a single payer system. The more conservative Obamacare has problems that would not be present in the more liberal single payer.

At the end of the Times’ article there’s this:

The news in the report is not all bad for Democrats. The office also sees the budget deficit falling to $514 billion in the 2014 fiscal year, or about 3 percent of economic output, from $1.4 trillion in 2009. Many economists consider deficits of that size to be sustainable in the long term.

The budget office sees the deficit continuing to drop in the 2015 fiscal year, to $478 billion, or about 2.6 percent of economic output. From there, though, it anticipates that the deficit will rise again as government spending picks up, absent congressional action.

Yes, it’s not all bad: the CBO report says that the economy is doing better and will do pretty well in the next two years; the deficit is now at a sustainable level; the number of uninsured will be 25 million less than it would be without the law and the percent of American citizens with insurance will increase from 86 to 92%. It actually sounds like most of the report is good for President Obama.

Update: I’m a little confused by these two bits:

CBO anticipates that the ACA will lead to a net reduction in the supply of labor.

On balance, CBO estimates that the ACA will boost overall demand for goods and services over the next few years because the people who will benefit from the expansion of Medicaid and from access to the exchange subsidies are predominantly in lower-income households and thus are likely to spend a considerable fraction of their whereas people who will pay the higher taxes are predominantly in higher-income households and are likely to change their spending to a lesser degree. Similarly, reduced payments under Medicare to hospitals and other providers will lessen their income or profits, but those changes are likely to decrease demand by a relatively small amount.

The net increase in demand for goods and services will in turn boost demand for labor over the next few years, CBO estimates.

They also estimate that the unemployment rate will decrease to 5.8% by 2017 but stay a bit over the base rate. How do these three things coexist: higher demand, lower supply of work, higher than base unemployment. If demand stays the same, shouldn’t employment stay about the same–so if some people decide to work less and others are available, shouldn’t other people be hired to make up the difference since there is the same demand? What am I missing?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: