CBO projects lower labor participation due to Obamacare subsidies

Health insurance subsidies and expanded Medicaid coverage offered under the Affordable Care Act will likely result in a reduction of work hours after the economy fully recovers in 2017, according to the non-partisan Congressional Budget Office.  

The CBO anticipated that Obamacare benefits – particularly for older and lower-income workers – will “keep hours worked and potential output during the next 10 years lower than they would be otherwise”.

“CBO estimates that the ACA will reduce the total number of hours worked, on net, by about 1.5% to 2% 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,” according to the analysis published on Feb. 4th. “The reduction in CBO’s projections of hours worked represents a decline in the number of full-time equivalent workers of about 2 million in 2017, rising to about 2.5 million in 2024.”

Although some Republican lawmakers and news reports last week implied that the decline of work hours is the result of businesses cutting back to save money, CBO has found “no compelling evidence that part-time employment has increased as a result of the ACA.”

“The estimated reduction stems almost entirely from a net decline in the amount of labor that workers choose to supply rather than from a net drop in businesses’ demand for labor, so it will appear almost entirely as a reduction in labor force participation and in hours worked relative to what would have occurred otherwise rather than an increase in unemployment (that is, more workers seeking but not finding jobs) or unemployment (such as part-time workers who would prefer to work more hours per week),” according to CBO’s analysis.

CBO Director Douglas Elmendorf pointed out that the reductions are not job losses because there is difference between cuts in work hours imposed by employers versus choices made by workers.

“If somebody comes up to you and says, ‘The boss says I’m being laid off because we don’t have enough business to pay me,’ that person feels bad about that; we sympathize with them for having lost their job,” said Elmendorf. “If somebody comes up to you and says, ‘I’ve decided to retire’ or ‘I’ve decided to stay home and spend more time with my family’ or ‘I’ve decided to spend more time doing my hobby,’ they don’t feel bad about it. They feel good about it, and we don’t sympathize; we say congratulations.”

Elmendorf noted that the Affordable Care Act’s subsidies put some workers in “a better position” to either reduce their work hours or retire early because they no longer solely depend on keeping a full-time job to have health coverage.

Democratic lawmakers argued that the subsidies and expanded Medicaid coverage would help end “job lock” and empower workers to choose how much they need to work depending on their life circumstances.

“Before the ACA, if you lost your job, you lost your health insurance. Now, you can go to the exchange and get affordable health insurance,” said Rep. Chris Van Hollen (D-Maryland). “The Affordable Care Act does end that job lock. It allows Americans to choose to spend more time with their families or to pursue their dreams, and that is not a bad thing. It’s a good thing.”

At a recent hearing before the House Budget Committee, Rep. Tim Ryan (D-Ohio) offered several examples of why workers might choose to reduce their work hours because they are no longer “job locked” when it comes to health care:

  •  Parents can spend more time raising their baby or young children;
  •  People can stay home to take care of their sick elderly parents instead sending them to nursing homes;
  •  A steel worker who has worked from age 18 to 60 can retire with worrying about having to take on a low-wage job just to get heath coverage;
  •  A lower-wage worker juggling multiple part-time jobs can cut back on the number of jobs and hours he or she works.

However, the lower labor participation as a result of the Affordable Care means that the U.S. economy will grow slower after 2017.

“In CBO’s projections, the growth of potential GDP over the next 10 years is much slower than the average since 1950,” the analysis concluded. In addition, the CBO projected that the U.S. GDP [gross domestic product] will be 0.5% lower than its potential between 2018-2024.

Rep. Paul Ryan (R-Wisconsin) argued that because the health care law is discouraging people to work and slow economic growth, it would make “the poverty trap much worse” for low-wage workers.

But as Rep. Hakeem Jeffries (D-New York) and Rep. Bill Pascrell (D-New Jersey) pointed out, many important social safety nets and labor protection laws – including Social Security, child labor laws, 40-hour work week, and a ban sweat shops – have resulted in lower labor participation and reduced the total number of hours worked.

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