Health Reform Labor Economics

CBO vs. Urban: ACA and Unemployment

Will the Affordable Care Act (aka ACA, aka Obamacare) cost American millions of jobs. A recent report by the CBO says yes.

CBO estimates that the ACA 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.

However, evidence from the Urban Institute says that the CBO figures may be over-estimates.

…Reducing the receipt and quantity of low-income benefits as income increases provides an incentive for some people to work less…nearly all of the employment effect is caused by workers choosing to reduce how much they work and not because employers demand fewer workers. Unemployment—wanting to work but not being able to find a job—will be largely unaffected by the ACA. Moreover, those who decide that not working is better than working because of their greater access to health insurance are made better-off.

In essence, this controversy is not really a controversy. Both CBO and Urban agree that the labor market will shrink due the ACA. Urban says that this does not increase unemployment because many of these people may want to work less. For instance, consider a 64 year old who wants to retire but cannot because they don’t have insurance if they quit their job. Being able to buy affordable insurance may make allow them to exit the labor market. This will decrease the number of workers but will not necessarily push up unemployment.

Looks like this argument is just two different sides of the same coin. ACA may hurt the economy due to fewer workers entering the labor market, but may improve social welfare since most of those who exit the labor market are doing so by choice.


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