Because of Obamacare, the national labor force could shrink by the equivalent of 2.5 million full-time workers, according to a Congressional Budget Office report released Tuesday. While that may seem like a dire prediction, it would largely be the result of Americans having more choices for how they get health coverage -- not the result of businesses hiring less.
The nonpartisan CBO estimates that the Affordable Care Act will reduce Americans’ incentive to have a job or work more hours for two reasons. First, the health reform law offers subsidies to low-income Americans that decline as their income goes up. It also offers expanded access to Medicaid benefits for the poorest workers, which is similarly tied to income. That means that for some people, it may make sense to earn less money through work so they can get a bigger break when buying health insurance. In other words, some workers will decide that having subsidized health coverage is more valuable to them than having more money to spend on goods and services.
Second, for some Americans the subsidies will essentially function as an increase in income because they won't be paying as much for their health care, allowing them to work less and still maintain the same standard of living.
"The estimated reduction stems almost entirely from a net decline in the amount of labor that workers choose to supply, rather than from a net drop in businesses' demand for labor," the report states.
Most full-time workers will probably decide that it doesn't make sense to reduce their own hours or leave their jobs to qualify for coverage, according to the CBO. The people most likely to make that choice are low-wage workers, who either don't get company health benefits or are making so little that they would be close to qualifying for Medicaid or the subsidies.
Still, the structure of the Obamacare subsidies makes it less likely that workers would make that choice at all, according to Elise Gould, the director of health policy research at the left-leaning Economic Policy Institute.
An extra $100 in income doesn’t directly translate into $100 less in subsidies, meaning that for many low-income workers, there would probably be more of an incentive to make more money than to get the government breaks.
“It’s hard to imagine that people don’t want to move up the wage scale and do better in that way,” Gould said. “It’s not unreasonable, but if you’re the only wage earner in your house, then you’re going to be making very different decisions than if you are a second wage earner.”
In addition, the CBO analysts acknowledge that their "estimate of the ACA's impact on labor markets is subject to substantial uncertainty."
One reason for the uncertainty is simply that the changes that will result from the health care law are going to take place on an unprecedented scale. Another reason is that there are a variety of ways Obamacare could affect workers: Some provisions may incentivize Americans to work more and some could push them to work less, resulting in the net loss of labor supply over a decade.
As the White House noted in a statement Tuesday, the people most likely to reduce their hours or stop working are those who have a job mainly to get affordable health coverage -- people like second wage earners in a household, potential entrepreneurs or workers close to retirement.
"Individuals will be empowered to make choices about their own lives and livelihoods, like retiring on time rather than working into their elderly years or choosing to spend more time with their families," the statement reads.
This phenomenon of workers sticking in a gig just to get insurance is called “job lock,” and economists consider it a labor market inefficiency, Gould said.
“That is a pretty clear labor market effect that we would expect from the ACA because you don’t have to work any more to get health insurance,” Gould said. “The desire to get insurance is not as strong through the workplace because you have other options.”
Obamacare will also affect the other side of the equation -- that is, businesses' demand for workers -- but it's unclear exactly how, because the law's provisions have the potential to both incentivize and decentivize employers to hire, according to the CBO. The law will require companies with at least 50 full-time workers to offer health benefits to anyone who works more than 30 hours per week starting next year. That may in turn give employers a reason to hire fewer people or more part-time workers to keep their labor costs down, the report says.
At the same time, the health care law could indirectly spur companies to hire, according to the CBO. With lower-income families spending less for their health care, they would have more money to spend on goods and services, and companies would have to hire to meet the increased demand.
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