Friday, October 18, 2013

Why Obamacare Will Make America Less Productive

So as marginal employees are pushed into part-time work and as labor demand is reduced on increased costs, the unemployment rate may continue to decrease with a reduction in the labor supply. 

Via Economic Policy Blog and By Veronique de Rugy

Washington's shutdown is over and the debt ceiling has once again been raised, yet the long-term budgetary and economic outlook is no more certain that it was before Congress struck a deal.

Adding to the uncertainty is the implementation of President Obama's health care law, also known as Obamacare. Let's look specifically at the potential impact of Obamacare on the supply and demand of labor.

On the demand side, the health care law requires employers with more than 50 workers to provide health insurance to all full-time employees (defines a full-time job as 30 hours or more per week) or pay a $2,000 penalty per worker.

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In that sense, the law increases the cost of current and future employees. It also gives businesses an incentive to hire more part-time workers to avoid the costs of providing health insurance or paying the penalty for full-time employees.

There is increasing evidence that this is already happening. Employers ranging from companies such as Walmart and Forever 21 to community colleges in Virginia have already started increasing their share of part-time employees rather than full-time ones.

Obamacare’s tax increases will have a negative impact on labor’s supply side, as well. University of Chicago economist Casey Mulligan has done a significant amount of research on this issue.

In his August piece in the New York Times about health-care inflation and the arithmetic of labor taxes, he wrote:

“The Affordable Care Act also creates explicit taxes on employers, subsidies for layoffs and various implicit taxes on employees with many of the same economic characteristics as taxes on employers.”.

In addition to the tax, the law also provides more subsidies to low-income families, and adds “four significant, permanent, implicit unemployment assistance programs, plus various implicit subsidies for underemployment.”

In a National Bureau of Economic Research paper published in August, Mulligan calculated the combined effect of higher taxes and more generous subsidies.

He found that it will have an important depressing impact on American’s incentive to work, and hence, on our labor supply. In other words, Obamacare will contract the labor market.

Read the rest here.

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