Cut out the noise and read the CBO report

All right, enough. I’ve read enough—left, right, and center—about what CBO said about the labor market effects of Obamacare. You know what the best thing I read was? The CBO report itself. The details are in an appendix. It might be longer than you care to read in full, but even reading just the first three pages and skimming the rest, I think you’ll learn a lot more about the truth than you’ll find almost anywhere else. This is the source document, after all.

(You could skip the rest of this post and read the report, but keep reading for my summary, for what it’s worth.)

What I see, reading the document, is a discussion of myriad ways Obamacare will affect the labor market. Some are reasonably construed as the removal of a distortion. For instance, people who are near retirement or would like to make an attempt at starting their own business really have been “locked” into jobs for health insurance. Maybe they have a pre-existing condition and have not been able to find affordable coverage on the individual market. Under Obamacare they can. With health insurance taken care of, they are free to do what they prefer, which is to retire or to take a risk on a new venture.

Some other effects can be reasonably construed as the addition of distortions. There really are higher taxes for some high-income people in Obamacare. That’s a work disincentive. There really is an exchange subsidy cliff at 400% of the poverty line, which could disincentivize some people from working more, making more, and losing the subsidy. Medicaid will expand (in some states), and some people won’t want to take a job and lose that coverage. All true.

Then there’s the mixed bag of the Cadillac tax—the excise tax on high-premium, employer-sponsored plans. It’s a tax, for sure. It will alter the cost and nature of employer-sponsored health insurance. That could change whether people want to work and retain such coverage or not. On the other hand, it will cause wages to go up, which is a work incentive and will stimulate non-health sectors of the economy somewhat. And there’s the employer mandate, which is a tax on employers, though delayed until 2015 (and probably should be repealed). It has incentives for employers to cut full time work.

There are a few other factors, but you get the idea. It’s a mixed bag of anti- and pro-distortionary features. Unfortunately, CBO only signed but did not quantitatively weight the impact of each of the relevant factors. We only have the bottom line prediction of a one percent drop in aggregate wages earned over 2017–2024. You can cherry pick the anti- or pro-distortionary features to hang this number on, to make the law look awesome or terrible. That’s what you’re seeing in the debate. But, skip it and read the appendix for the full story.

Several more points and some emphasis:

  • Some of CBO’s predictions are for people to (voluntarily choose to) leave the labor force. That’s more than leaving a job. That’s leaving the ambition to have a job. When that happens, it removes that individual from both the numerator (number unemployed) and denominator (number seeking work) of the unemployment rate. Therefore, it has less of an effect on the unemployment rate than if they just left their job but wanted to find another one.
  • Some of CBO’s predictions are for people to cut their work hours. This is not “job loss” but a cutback in work.
  • Some of CBO’s predictions remove constraints (job lock), giving people freedom to do what they really want to do with respect to working.
  • Some of CBO’s predictions add constraints (incentives) for people not to work as much as previously.
  • Some of the work disincentives of Obamacare could be tweaked (ditch the employer mandate, design a smoother glide path off subsidies, etc.) but at some taxpayer cost. Taxes also impose an economic drag. Choose your poison.
  • No other health reform plan that expands coverage would do so without affecting the labor market in good and bad ways. Ultimately, this is not really a debate about Obamacare but about the effects of almost any coverage-expanding reform.

Finally, tune out the noise and read the damn report.


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