Obamacare and hiring

Pundits have been squabbling over whether a recent Congressional Budget Office report projects that the Affordable Care Act will cost the American economy as many as 2.5 million jobs. Writing for the Heritage Foundation’s “Insider Online” blog, Alex Adrianson offers an accurate description of what the CBO said.

ObamaCare’s subsidies make it easier to get health insurance without working; meanwhile the law’s additional taxes reduce workers’ take-home pay, making leisure time seem more attractive. As a result, says the Congressional Budget Office, the nation will work between 1.5 percent and 2 percent fewer hours by 2024 than it would have worked if ObamaCare had not become law. The loss of those hours is equivalent to losing 2.5 million full-time workers.

And, says CBO in its latest report on the budget outlook, low-income workers are more likely to be affected since the subsidies are aimed at helping them. Because the subsidies are phased out as income rises, they create a disincentive to earning more—much like a higher marginal tax rate would. Some workers will drop out of the labor force altogether, says CBO, which projects that the labor force participation rate will fall to 62.5 percent by 2017. (The labor force participation rate for January was 63.0 percent, up slightly from the December figure of 62.8 percent, which was a 35-year low.)

Meanwhile, Federal Reserve staffers find that the health care law is already having a negative impact on hiring.

Federal Reserve banks have heard the same concerns. The Federal Reserve recently released its January Beige Book, which “gathers anecdotal information on current economic conditions in its District through reports from Bank and Branch directors and interviews with key business contacts, economists, market experts, and other sources.” The Beige Book finds businesses repeatedly stating that Obamacare and rising health care costs have held back the labor market:

  • Atlanta Fed: “On balance, many firms expressed continued hesitancy caused by concerns about healthcare reform in terms of their overall hiring plans” (p. VI-3).
  • Richmond Fed: “Employers continued to express concern about potential cost increases related to [Obamacare]” (p. V-4).
  • Chicago Fed: “Non-wage labor costs also increased, with a number of contacts reporting higher healthcare premiums” (p. VII-3).
  • Boston Fed: “Downside risks include the upcoming costs to businesses of compliance with [Obamacare] and the trend toward office downsizing on a space-per-person basis” (p. I-3).
  • Philadelphia Fed: “Firms also expected to see the largest increase in health benefits costs compared with other input and labor costs in 2014” (pp. III-1 and III-2).
  • Cleveland Fed: “A majority of our contacts cited rising healthcare insurance premiums as a concern” (p. IV-2).

Obamacare has substantially increased the cost of doing business. That ultimately hurts current workers—especially job seekers—by making businesses more cautious about hiring new employees.

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