Economist: Obamacare to Encourage Part-Time Employment, Cost Taxpayers

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While much has been made of the Patient Affordable Care Act, or as it has been politically dubbed, ‘Obamacare,’ studies and analysis are increasingly scrutinizing the effects the law is going to have on health insurance in the United States.

Writing for The New York Time’s Economix blog, University of Chicago professor Casey B. Mulligan explored a startling way in which the Affordable Care Act is going to change the dynamics of the labor market.

Mulligan is the author of The Redistribution Recession: How Labor Market Distortions Contracted the Economy in which he argues that features varying from minimum wage laws to tax rates deepened, or very possibly caused the recession by distorting incentives and causing massive job loss.

Similarly, he argues in his piece for Economix that Obamacare will make employees and employers alike opt for part-time hiring, a feature which could profoundly change the way American industry operates.

While he points out that a “lack of health benefits and the lower pay for part-time work have traditionally discouraged people from taking part-time jobs rather than full-time jobs,” now, he says, “Because part-time workers will be eligible for the subsidies except in the rare instances in which their employer covers them, full-time work will no longer carry the advantage of access to health insurance. That by itself will encourage more people to seek part-time work.”

Essentially, the law could have the unintended consequence of manipulating a marketplace predicated on having full-time workers to reach maximum productivity to switch largely to part-time employment, since the incentives will now be greater. In line with the argument advocated in his book, this is going to discourage firms from hiring full-time at a massive cost to the taxpayer.

Whereas he shows that a full-time position with health insurance costs an employer $56,000 a year, and leaves the employee with about $34,000 in pretax salary, now, thanks to a subsidy offered in President Obama’s healthcare law, part-time workers will be able to earn essentially the same wage ($33,908), and have the $12,658 dollar difference paid for by the United States Treasury. This will create a phenomenon, he argues, that will incentivize fewer work hours since the cost to the employer is the same, and taxpayers will be stuck to make up the difference.

The Obama administration seems to have come face to face with this reality, as they postponed the provision which would require firms of more than 50 people to offer health insurance or pay a fine, after business leaders said they needed more time to review the measure. Democratic Senator Max Baucus of Montana fears the politics and reality of the law are becoming too much, predicting that, “I just see a huge train wreck coming down.”

From an economic prospective, Mulligan agrees, and said the penalty could, “create yet another set of reasons that part-time employment will become more common next year.”

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