Obamacare, Work Killer

Obamacare isn’t a job killer, at least not
according to the Congressional Budget Office (CBO). But it is a
work killer.

That might sound like a meaningless distinction, but there is a
difference. Obamacare, according to the CBO, isn’t going to cause
employers to terminate millions of jobs. But it is projected to
cause millions of people—about 2 million in 2017, and 2.5 million
by 2024—to quit working, or work fewer hours than they otherwise
would have.

The White House has declard that this is a good thing. Thanks to
Obamacare, the administration said in a
statement last week, “individuals will be empowered to make
choices about their own lives and livelihoods, like retiring on
time rather than working into their elderly years or choosing to
spend more time with their families.” People will “no longer be
trapped in a job” just to get coverage. Obamacare will allow people
to “pursue their dreams.”

What might that look like in practice? The bulk of the reduction
in the labor force isn’t expected to occur until 2017, but with the
help of Families USA, a health care advocacy group that supports
Obamacare, The Washington Post has already
found of two people who have quit working because the law:
a 56 year-old Indiana woman who left a payroll administration job
when her duties changed and now babysits her granddaughter full
time, and a 44 year-old Texas man who quit an $88,000 job in order
“to help his nephew, a cancer survivor, start a social media and
video-gaming site for other teens with the disease.” It’s an unpaid
position.

Does these examples make the case for Obamacare or against it?
Here are two people who, absent the existence of the law, would be
productive workers contributing to the economy. Thanks to
Obamacare, however, they are not. 

Something like that is expected on a larger scale, although the
impact won’t be distributed evenly across the income spectrum.

That’s because the effect is expected to be concentrated not
amongst the office-dwelling upper-middle class, but down the rungs
of the income ladder, within the cohort of relatively low-wage,
working-class Americans who are already less attached to the labor
force. (This is why the CBO projects that even though labor force
participation will be two points lower than it otherwise would have
been, total compensation will only be reduced by one point.)

The reason the effect is largest amongst the bottom of the
income spectrum is that the law’s insurance subsidies grow as one
makes less money. Sliding-scale subsidies reduce marginal returns
to work, because earning more money has the simultaneous effect of
reducing the value of the subsidy. (Medicaid, for those at the very
bottom of the income scale, has also been shown to discourage
work.) It’s basically a tax on work at the lower end of the income
spectrum.

As the CBO explains, “Subsidies that help lower-income people
purchase an expensive product like health insurance must be
relatively large to encourage a significant proportion of eligible
people to enroll. If those subsidies are phased out with rising
income in order to limit their total costs, the phaseout
effectively raises people’s marginal tax rates (the tax rates
applying to their last dollar of income), thus discouraging
work.”

The simplest way of saying it is that Obamacare makes it less
painful to not work, especially for those who already don’t make
much money. The result is that over the next decade, millions of
people will either work less or not at all. In economic terms, it’s
the same
effect as much of the transfer spending contained in the big
fiscal stimulus package passed during President Obama’s first year
in office.

Supporters of Obamacare have pointed out that this is true of
all means-tested welfare programs, including some of the
conservative health reform proposals that tie financial assistance
to income levels.

That’s true, but it doesn’t mean that we should simply sigh and
move on. Government transfer programs can be revamped and remodeled
with work in mind. In 2006, when Bill Clinton revisited the welfare
reform he’d passed a as president decade earlier, he declared
it a success—because it encouraged more than a million
people to take up work, and to move beyond government
assistance.

And yet there is a real tension between work and welfare, a
balance between employment and aid. That balance has tipped toward
the latter in recent years, as various parts of the safety net have
expanded to catch those people harmed by the recession. In the
process, as high unemployment has persisted and millions have
dropped out of the market for work entirely, pushing the labor
force participation down to its lowest point since the 1970s, the
political conversation has naturally turned to the question of how
to create jobs. So far, we’ve found frustratingly few good answers.
Which suggests that policymakers concerned about joblessness might
want to consider looking more closely at finding ways to encourage
work—or at the very least, to minimize the ways in which discourage
it.