This commentary originally appeared in The Federalist on February 6, 2014.
Back in 2009, opponents of what would become Obamacare argued that its taxes and mandates would kill jobs and drive up unemployment. Requiring large employers to provide health insurance for all workers who log at least 30 hours a week, so the reasoning went, would prompt businesses to cut hours rather than pay for coverage. Many argued that those most affected would be low-wage workers.
So far, there is anecdotal evidence that this is happening in some industries. (A timely example is Darnell Summers, a fry cook whose employer cut his hours to avoid paying for health coverage. Summers confronted President Obama about his predicament on a recent Google Hangout, but the president changed the subject and talked about raising the minimum wage instead.)
Whether this is happening en masse, however, is unclear, and at least some data indicate that it is not. The Bureau of Labor Statistics Household Survey for December reported that the number of unemployed dropped by 490,000 and the unemployment rate fell 0.3 percentage point to 6.7 percent. Meanwhile, the number of those with part-time work for economic reasons remained static at about 7.8 million—slightly lower than it was in December 2012.
But according to the Congressional Budget Office report released Tuesday, Obamacare’s effect on employment will not be a spike in the unemployment rate or a massive shift to part-time work, but a reduction in labor force participation that by 2024 will decrease the number of full-time jobs in the U.S. by 2.5 million, and that workforce compensation will drop by one percent between 2017 and 2024—twice what CBO had previously projected. According to BLS, the country’s labor force participation rate in December stood at 62.8 percent—the lowest in a generation, and dropping. (See here for a good primer on the significance of labor force participation rates.)
This change in the workforce will not be driven by large employers cutting hours, but by low-wage workers who choose to work less—or not at all—because they don’t want to lose government-subsidized health coverage.
This change in the workforce will not be driven by large employers cutting hours, but by low-wage workers who choose to work less—or not at all—because they don’t want to lose government-subsidized health coverage. Obamacare’s disincentives to work, according to CBO, won’t be felt until after 2016, when it “will reduce the total number of hours worked, on net, by about 1.5 percent to 2.0 percent during the period from 2017 to 2024, almost entirely because workers will choose to supply less labor—given the new taxes and other incentives they will face and the financial benefits some will receive.”
That Obamacare is riddled with such perverse incentives shouldn’t be something we need CBO to tell us, but it’s helpful they did—in part because it adds an authoritative, nonpartisan perspective to what has so far been a deeply partisan debate over the law, and in part because it highlights something economists and scholars have been warning about for some time: Obamacare subsidies provide strong incentives to work less and earn less by distorting income.
This has been a persistent cause for concern even for some Obamacare supporters. Back in October, Cal-Berkley law professor and former Treasury official David Gamage (a self-avowed Obamacare supporter) wrote in the Wall Street Journal: “Consider a low-income American supporting a family of four deciding whether to take a part-time job that pays $36,000 a year or a full-time job that pays $42,000 a year. According to my research, accepting the higher-paying job could result in the family losing over $10,000 a year in health-care subsidies.”
This echoes plenty of other research outlining how exchange subsidies discourage low-income Americans from moving up the economic ladder—and in some cases from even getting married. Because premium subsidies on the exchanges are distributed on a sliding scale based on household income, an unmarried couple would, individually, qualify for subsidies and a married couple with the same income would not.
As if that weren’t enough, Obamacare actually encourages divorce. A 2011 National Bureau of Economic Research working paper found that 13 million poor Americans would not qualify for exchange subsidies because one family member has an offer of affordable insurance from an employer—but only for that one person. Under Obamacare, the spouse and kids don’t get a subsidy to buy insurance unless the parents get divorced.
(That’s too bad, because being raised in a married household is one of the best indicators of upward economic mobility in America. In fact, a new Harvard studysuggests that just living in a community with lots of married families means children are more likely to succeed—even if they come from a single-parent household.)
That government welfare encourages dependence and discourages work should not come as a surprise. Last fall, the Cato Institute’s Michael Tanner published a papershowing how a cornucopia of welfare benefits in some states force poor Americans to ask themselves whether it’s even worth it to work.
This isn’t because poor people are lazy; it’s because those nearest the poverty line are most likely to be shrewd about what is in their best economic interest. Tanner’s study, for example, found that welfare pays more than a minimum-wage job in 35 states; in 13 states it pays more than $15 an hour. With that kind of offer on the table, why would you hustle for minimum wage?
The Left’s answer to such questions is: raise the minimum wage (which is really just a way of avoiding the question, and also why Obama wouldn’t answer the fry cook). Conservatives argue that the answer is: you wouldn’t.
The White House’s answer is: working is for chumps. In a moment of Orwellian élan Tuesday, The administration spun the CBO numbers as a good thing, saying that “individuals will be empowered to make choices,” and that because of Obamacare, “Americans would no longer be trapped in a job just to provide coverage for their families, and would have the opportunity to pursue their dreams.”
But all propaganda aside, what the new CBO report confirms is that the perverse incentives we’ve foisted upon the poor through welfare will now be foisted upon the slightly-less-poor through Obamacare—and we should expect them to respond accordingly.
Mr. Davidson is a writer based in Austin, Texas, and a health care policy analyst at the Texas Public Policy Foundation.