Health care law will cost 1 million or more jobs

 

Affordable Care Act enthusiasts repeatedly dismiss concerns over the law's threat to U.S. jobs. New York Times writer Bill Keller, for example, insists the validly of these assertions is on par with urban legends.

I can understand why the Old Gray Lady's fact-checkers might steer clear of the op-ed page. After all, rebutting the many dubious claims peppering Paul Krugman's columns likely would chew up a lot of valuable resources. Fortunately, this blog is dedicated precisely to divining the truth in such claims and advancing the public debate.

To his credit, Mr. Keller acknowledges that the non-partisan Congressional Budget Office was the original source of the allegedly mythical claim that the ACA will reduce employment by "about 800,000 jobs." He then sneers:

Sounds like a job-killer, right? Not if you read what the C.B.O. actually wrote. While some low-wage jobs might be lost, the C.B.O. number mainly refers to workers who - being no longer so dependent on employers for their health-care safety net - may choose to retire earlier or work part time. Those jobs would then be open for others who need them. [Emphasis added].

Mr. Keller's interpretation invalidates the very premise of the CBO analysis. What the report said specifically is that the ACA will reduce the amount of labor used in the economy by roughly half a percent [1]. If those who lost jobs were simply replaced by others who need them, then there would be no reduction in the amount of labor used in the economy. In fact, every year millions of workers leave jobs and are replaced by others. And analysts properly dub that "turnover" not "loss."

In an attempt at misdirection, Mr. Keller concedes the law will eliminate 800,000 jobs but then suggests most of the loss will consist of people who voluntarily leave the labor force because they would no longer have to work for their health benefits. Under the ACA, these individuals would qualify for Medicaid or exchange subsidies. This appears to be perfectly fine with Mr. Keller since, after all, they weren't fired. But of course, it is not particularly good for the economy to have potential workers who are idle-especially if the reason they have chosen to be idle is because other working taxpayers are supporting them.

Moreover, the biggest losers under the ACA will be the least educated and least skilled workers in society. Under the law, large employers who do not provide health coverage will be fined $2,000 per full-time worker not counting the first 30. This increase is equivalent to about $1 an hour or a 14 percent increase in the minimum wage-a relative increase larger than nearly all others over the past 50 years.

Voluminous studies have demonstrated that minimum wage laws-however well-intentioned-actually increase unemployment among the very group they are intended to help. Even the CBO analysis acknowledges this negative impact [2]. Yes, some low-wage workers will benefit from the Medicaid expansions and exchange subsidies, but this will be little consolation to those who lose their job as a result of this mandate. How many such low wage workers will be put out of work by their employers? A reasonable estimate is more than 110,000 [3]. As AEI President Arthur Brooks has shown in his latest book The Road to Freedom, taking away someone's chances at earned success isn't good for them or for society.

Still, the direct job losses imposed by the ACA pale in comparison to the hidden losses that will result from its more than $500 billion in new taxes. I have elsewhere calculated that in its first ten years, the ACA would shrink the economy by a minimum of $157 billion (if its scheduled tax increases all are implemented) and perhaps by as much as $550 billion (if, as is likely, Congress elects to soften the blow of draconian cuts in Medicare payment rates to doctors and hospitals by raising taxes to avoid having to impose them) [4]. Since GDP per worker is roughly $59 per hour, and the average U.S. worker works 1,787 hours, these GDP losses are roughly equivalent to the loss of 150,000 to 520,000 jobs on an annualized basis [5]. The CBO has never calculated the impact of higher taxes on lost output, so there is no special significance to its ignoring this impact in its cost estimate of ACA. The point is that when we consider both the direct and "hidden" costs of ACA, the adverse impact is 19 to 65 percent higher than the formally estimated 800,000 jobs figure.

In a country that employs 160 million workers, the loss of 950,000 to 1.3 million jobs may not seem a lot. But we already have 5 million fewer workers than we did four years ago. We should not be casual about adding another million more to this count. The bottom line is that the ACA will result in roughly a million or more fewer employed Americans. No amount of hand-waving by the law's proponents can avoid this inconvenient truth.

[1] The 800,000 figure is a statistical construct. As explained by CBO's director in testimony before the House Budget Committee, one half percent applied to the estimated 160 million U.S. workers in 2021 (the end year of the CBO analysis) equals 800,000 fewer workers. But the director went on to say that this estimate is uncertain as it assumes average workers earning an average wage and working an average number of hours. However, the CBO report makes clear that the lion's share of lost jobs will be among lower wage workers who qualify for Medicaid or exchange subsidies. If the average wage of job-losers is half that of wage-earners in general, this would imply a larger number of workers would lose their jobs to produce a one half percent reduction in labor output.

[2] CBO says "the weight of the evidence suggests that raising the minimum wage has a negative but small effect on the employment of low-wage workers" (p. 4) and points readers to a solid review of the literature: David Neumark and William L. Wascher, "Minimum Wages and Employment." Foundations and Trends in Microeconomics, vol. 3, no. 1-2 (2007).

[3] This is based on a 2007 study that estimated 224,000 workers could become unemployed if firms were required to provide health insurance costing, on average, $2 per hour worked. Katherine Baickerr and Helen Levy, Employer Health Insurance Mandates and the Risk of Unemployment. Working Paper No. 13528, Cambridge, MA: National Bureau of Economic Research, October 2007. Since the ACA penalty is $1 an hour for a full-time worker, the impact would be roughly half as large. It is difficult to estimate with precision, however, since in calculating the employer penalty, the first 30 workers are not counted. Nevertheless, the point is to provide an illustrative number comparable to the 800,000 to give readers a rough sense of how many unlucky workers there might be.

[4] These figures include $157 billion related to the known taxes scheduled to be imposed, an additional $237 billion if $455 billion in required spending cuts on Medicare, Medicaid and the State Children's Health Insurance Program are averted through tax increases, and an additional $156 billion if a permanent "doc fix" is likewise financed through higher taxes. Note that such a "doc fix" was not technically part of the ACA, but it had been promised to the American Medical Association as a quid pro quo to forestall their opposition to the legislation. It is highly unlikely the bill would have passed in the face of fierce AMA opposition.

[5] While this is a very crude, back-of-the-envelope calculation, it is consistent with estimates produced by others and if anything appears to be a lower bound estimate of the adverse impact on jobs. For example, the NFIB Research Foundation has estimated that the increase in premiums for employer-sponsored health insurance resulting from the annual fee on health insurers (which accounts for $90 billion of the roughly $500 billion in new tax revenues under ACA) will alone reduce private sector employment by 125,000 to 249,000 jobs in 2021. Michael J. Chow. Effects of the PPACA Health Insurance Premium Tax on Small Businesses and Their Employees. National Federation of Independent Business, November 9, 2011. Similarly, a dynamic impact analysis of the ACA concluded that the increase in federal debts alone will crowd out other productive investments, resulting in an estimated 670,000 lost job opportunities per year. Karen Campbell, Guinevere Nell and Paul Winfree. Obamacare: Impact on the Economy. Heritage Foundation, September 22, 2010.

 

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

Christopher J.
Conover

What's new on AEI

AEI Election Watch 2014: What will happen and why it matters
image A nation divided by marriage
image Teaching reform
image Socialist party pushing $20 minimum wage defends $13-an-hour job listing
AEI on Facebook
Events Calendar
  • 20
    MON
  • 21
    TUE
  • 22
    WED
  • 23
    THU
  • 24
    FRI
Monday, October 20, 2014 | 2:00 p.m. – 3:30 p.m.
Warfare beneath the waves: The undersea domain in Asia

We welcome you to join us for a panel discussion of the undersea military competition occurring in Asia and what it means for the United States and its allies.

Tuesday, October 21, 2014 | 8:30 a.m. – 10:00 a.m.
AEI Election Watch 2014: What will happen and why it matters

AEI’s Election Watch is back! Please join us for two sessions of the longest-running election program in Washington, DC. 

Wednesday, October 22, 2014 | 1:00 p.m. – 2:30 p.m.
What now for the Common Core?

We welcome you to join us at AEI for a discussion of what’s next for the Common Core.

Thursday, October 23, 2014 | 10:00 a.m. – 11:00 a.m.
Brazil’s presidential election: Real challenges, real choices

Please join AEI for a discussion examining each candidate’s platform and prospects for victory and the impact that a possible shift toward free-market policies in Brazil might have on South America as a whole.

Event Registration is Closed
No events scheduled this day.
No events scheduled today.
No events scheduled this day.
No events scheduled this day.