CBO: Obamacare Will Impact Labor Supply, Not Labor Demand

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A major theme of the opposition to the Affordable Care Act is jobs, or more precisely, how implementation of the health care reform championed by President Barack Obama would result in massive job losses and widespread efforts to limit employees to fewer than 30 hours per week as companies attempted to mitigate the effects of the law’s employer mandate.

Republican Sen. Ted Cruz of Texas has been the public face of the Tea Party-backed campaign to stop the implementation of the Affordable Care Act, popularly known as Obamacare, and one of his leading criticisms of the health care reform law is the expected impact it will have on employment.

“Well, if you don’t believe Obamacare is the biggest job killer in the country, look to the facts. This year, report after report has rolled in about employers restricting work hours to less than 30 hours per week — the point where the mandate kicks in. The data also points to record-low workweeks in low-wage industries,” he said on the floor of the Senate on September 24, during a budget debate.

His argument is that the Obamacare provision that requires businesses with 50 or more full-time employees to provide those workers with a minimum level of health insurance coverage or face tax penalties will cause employers to shift employees’ schedules so that they will no longer be considered full time or just lay off workers entirely.

A Tuesday report from the Congressional Budget Office, at first glance, appears to support the senator’s claims. Included in the nonpartisan agency’s Budget and Economic Outlook for 2014 to 2024 is an updated analysis of the “labor market effects of the Affordable Care Act” that found the reduction in the total number of hours worked by the American labor force due to the health care reform “represents a decline in the number of full-time-equivalent workers of about 2.0 million in 2017.”

The CBO projects that Obamacare’s “largest impact on labor markets will probably occur after 2016, once its major provisions have taken full effect and overall economic output nears its maximum sustainable level.” By 2017, the number of full-time-equivalent workers will have declined by 2.5 million.

That pronouncement prompted the Obama administration to unleash its usual defensive rhetoric, with White House officials insisting that the law will be a positive for the U.S. economy and that reduction in employment will be offset by the law’s benefits. As for Republicans, the raw data seem to be further evidence of Obamacare’s flaws, which is one of the party’s key campaign issues for 2014 congressional midterm elections.

But to simply say that Obamacare will cause 2 million Americans to lose their jobs excludes a crucial part of the CBO analysis: that the Affordable Care Act — which will enable many Americans to purchase more affordable insurance policies — will influence the “amount of labor that some workers choose to supply,” not the availability of jobs.

The CBO’s report specifically states that the impact of the health care reform on employment will not be felt as an “increase in unemployment” or “underemployment.” The original source of the concern for job loss was a 2010 report from the CBO, which similarly said the Affordable Care would have a small effect on employment “primarily by reducing the amount of labor that workers choose to supply.” At the time, the agency’s prediction was slightly lower, with estimates set at a 800,000-worker decline. This decrease in the amount of labor in the economy would amount to one-half of 1 percent, according to the report.

The CBO-reported decline of full-time-equivalent workers, which the Republican Party translated into a loss of actual jobs, was instead meant to imply that individuals may choose to work fewer hours if they receive subsidies to help buy insurance or retire early if close to retirement.

As economist Dean Baker told the Los Angeles Times, this decline in the CBO’s full-time-equivalent categorization is actually a beneficial effect of the law and evidence that the health care reform will achieve one of its main goals. It helps “older workers with serious health conditions who are working now because this is the only way to get health insurance. And (one for the family-values crowd) many young mothers who return to work earlier than they would like because they need health insurance. This is a huge plus,” he said to the Times.

It is also important to remember that while the CBO notes how many full-time-equivalent jobs will be lost, that metric is merely an expression of hours worked. In total, the Affordable Care Act will reduce the total hours worked by the American labor force by approximately 1.5 percent to 2 percent from 2017 to 2024.

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