The Congressional Budget Office released a new working paper this week predicting that the Affordable Care Act will have a negative effect on the size of the U.S. labor supply over the coming decade.
Analysts at the CBO see a confluence of events in terms of Obamacare tax policy and changing attitudes of older or poorer Americans about staying on the job, which could produce a decline in the U.S. workforce by nearly 1 percent by 2025. "In that year, CBO estimates, the ACA will make the labor supply, measured as the total compensation paid to workers, 0.86 percent smaller than it would have been in the absence of that law."
Republican foes of Obamacare and some news organizations seized on the CBO report as evidence that the controversial health care law would eliminate or “kill” 2 million jobs by 2025.
"The CBO's latest report confirms yet another broken promise and negative consequence stemming from Obamacare," Senate Finance Committee Chair Orrin Hatch (R-UT), said in a statement. "When the president's health law hurts the labor force at the same time it increases health care premiums and taxes, it's clear the law is not working for the American people."
But the CBO isn’t looking specifically at job loss. It’s making projections about aggregate hours worked and the total number of workers who choose to stay in the workforce: “The labor force is projected to be about 2 million full-time-equivalent workers smaller in 2025 under the ACA than it would have been otherwise,” the agency wrote. That is, fewer work hours will be logged and paid for, the rough equivalent of 2 million jobs. But those two things — reduced hours across the economy and total jobs — are different things. And it’s important to note that the reduction in hours worked is relative to the number of hours that would have been worked in the absence of the law; in either case, total work hours continue to grow into 2025, it’s just a matter of by how much.
There are several factors at play that could result in a slight shrinkage in the labor force, according to CBO. For instance, lower-wage earners might decide to cut back on their hours or quit menial jobs altogether without fear of losing health care coverage because of their subsidized coverage under the new law. "The ACA's health insurance subsidies will make it easier for some people to work less or stop working without losing health insurance coverage," the CBO noted.
Glenn Kessler, The Washington Post’s fact checker, wrote last year that “this is not about jobs offered by employers. It’s about workers — and the choices they make.”
“In other words,” he added, “the nonpartisan agency is examining whether the law increases or decreases incentives for people to work.”
However, it’s also true that the lion’s share of the projected reduction in the workforce would come from adverse effects of new tax policy under Obamacare. For instance, phasing out health insurance subsidies as people’s income goes up creates a disincentive to work more.
Other provisions of the law will reduce the labor supply “by imposing higher taxes on labor income directly” — for example, the ACA’s increase in the payroll tax that higher-income workers must pay for Medicare’s Hospital Insurance program.
“Those estimates reflect CBO’s assessment of how workers, employers, and others will respond to the many significant changes that the ACA has made to federal programs and tax policies,” the report states.
In any event, the report by the non-partisan agency’s tax analysts must be taken with a large grain of salt. Republican critics of Obamacare have been predicting since the law’s passage in 2010 that President Obama’s signature health care program was a job killer that would set the economy back on its heels.
In reality, the country has experienced 69 consecutive months of job expansion since enactment of Obamacare, while the unemployment rate was cut in half.
Even the CBO acknowledges that the Affordable Care Act’s effects on the labor supply are uncertain in part because of “the magnitude of people’s responses to the work incentives created by the law is uncertain.”
One example is CBO’s supposition that many seniors who once continued working late in their careers for the health insurance coverage would be more inclined to leave their jobs – or cut back on their hours – now that they have access to Obamacare coverage. As The Fiscal Times has reported, that phenomenon hasn’t played out yet, with recent research from the University of Michigan finding no evidence of this among Americans between 55 to 64 years old.
Moreover, CBO acknowledges that its tax simulation model lacks some data needed to estimate the effects of two major provisions — the penalty on larger employers that fail to provide insurance coverage for their workers and the penalty on individuals who fail to obtain insurance coverage — on each taxpayer’s marginal and average tax rates. The agency consequently had to do some guesswork by making a simplified calculation of those provisions’ total effects on tax rates.
In some ways, the CBO’s latest calculations of the long term effects of Obamacare on the job market were conceived in a vacuum. U.S. health care spending increased 5.3 percent last year, topping $3 trillion overall, largely due to the expansion of Obamacare and Medicaid coverage. Employment in the health care sector is booming, and the Bureau of Labor Statistics predicts the most employment growth by 2022 will be among health care support jobs, such as diagnostic medical sonographers and physical therapist assistants, according to U.S. News & World Report.
That likely means that growth in the health care sector could more than offset other work force reductions in the coming decade.
Even so, some GOP leaders pounced on the latest CBO report as solid evidence that Obamacare is harmful to the economy and needs to be replaced.