Michael Meeropol: The Affordable Care Act And Employment Growth

Mar 7, 2014

I assume most of our listeners have heard of the columnist Charles Krauthammer.  Recently, he has been on a tear attempting to convince his readers that the Affordable Care Act is causing a reduction in employment.  He understands that it is no longer possible to get away with falsely asserting that the Congressional Budget Office prediction that the ACA will cause a decline in hours worked means an increase in involuntary unemployment.   Instead he argues that the voluntary decline in work because people are no longer tied to their jobs to get health insurance is somehow a terrible thing for the economy.

First he ridicules arguments made by Democrats (and others) that if one is able to voluntarily remove oneself from the labor force that might actually be a good thing.  Note the sarcasm: 

“Nancy Pelosi spoke lyrically about how Obamacare subsidies will allow people to leave unfulfilling jobs to pursue their passions, ‘Think of an economy where people could be an artist or a photographer or a writer without worrying about keeping their day job in order to have health insurance’.”   After a bit of red-baiting by quoting Karl Marx on the abilities of citizens in a post-scarcity communist society to do what they wanted to he remarks, “Pelosi’s vision is equally idyllic except for one thing:  The taxes of the American factory worker – grinding away dutifully at his repetitive mind-numbing job – will be subsidizing the voluntary unemployment of the artiste in search of his muse.” 

See Karthammer, “Obamacare’s war on work – Chapter 2” Springfield Republican 2/16/14, C4

This is new lie number one.

If you quit your job you are not eligible for unemployment compensation.  The subsidies that would help low income people pay for insurance on the Obamacare exchanges are paid for by a designated tax on high income earners –those with incomes in excess of $200,000 –  not middle income factory workers.  Those who voluntarily leave the workforce will not be able to turn to welfare either, because, as Krauthammer admits just six paragraphs later, welfare comes with a work requirement.

I would guess that most of the people who leave the labor force as a result of Obamacare will be those who retire before they are eligible for Medicare or those who decide to take a chance, quit their jobs, and try to set up their own businesses.  Being able to purchase health insurance with subsidies might be a great incentive for those itching to get out of a dead end job and try something new.

Lie number two starts with a fact:  The Affordable Care Act mandates that all businesses with 50 or more employees either offer health insurance or pay a fine.  According to Krathhammer, this is causing millions of Americans to lose their jobs as businesses struggle to have only 49 full time employees.  Also, many will be reduced to 30 hours per week so their employers don’t have to provide health insurance.

This is lie number two because there isn’t a shred of evidence that the Affordable Care Act has created a surge in part time unemployment.   The percentage of the labor force doing part time work jumped dramatically from 17% of the working population before the financial crisis hit to 20% by the middle of 2010.  After the Affordable Care act was signed, the percentage of workers in part time employment started to fall.  The overall unemployment rate has been falling since 2010 as well.

[Here are  some interesting details well described with easy-to-read charts.]

As listeners to my commentaries know, I have presented evidence over and over again that the problem with the US economy has nothing to do with government rules and regulations, nothing to do with high marginal tax rates, nothing to do with government deficits, and it certainly has nothing to do with the affordable care act.  The problem is private spending has not rebounded from the enormous decline in total spending during the great recession.   In previous recessions, the level of government spending has risen as result of both automatic stabilizers and actions by Congress that raised spending in order to put people back to work.  In this sluggish recovery, the initial stimulus from the Recovery Act of 2009 was mostly over by the end of 2010.  During the period of recovery, the private sector has shown some life but the public sector has been starved by austerity policies.  Of the 8.7 million jobs lost between 2007 and early 2010 close to 7.9 million have come back.

[More details]

Meanwhile, federal, state and local governments have eliminated more than 750,000 jobs since the recession ended in June 2009.  

[See Patrice Hill “Government job cuts create a historically slow recession recovery” (Washington Times, September 17, 2013)]

If Congress had supported any of President Obama’s proposals to help states retain their employees so that no jobs had to be lost, the economy would have finally gotten back to the level of employment that had existed before the recession began.  That would not mean we would have fully recovered because the labor force grew during the last 7 years.  (That is why the unemployment rate is higher than in December 2007 when the recession began, even after over four and a half years of recovery.)   However, we would have been much better off than we are now.  The failure of Congress to help states and cities retain their workers (and even increase hiring) is what has slowed this recovery.  The Affordable Care Act has had nothing to do with it.

It is even conceivable that all this talk about the Affordable Care Act in the context of sluggish employment growth is a cynical “bait and switch” tactic.  It helps keep the public’s mind off the real cause of the sluggish recovery – Congress.

Michael Meeropol is visiting professor of Economics at John Jay College of Criminal Justice of the City University of New York. He is the author (with Howard Sherman) of Principles of Macroeconomics: Activist vs. Austerity Policies.

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