CBO Found ACA Will Ease Job Lock Over Health Care

CBO: ACA Will Ease Health-Related Employment Constraints. On February 4, the nonpartisan Congressional Budget Office (CBO) released its 10-year economic projection which included an estimate of how the ACA will impact the job market. The CBO projected that the ACA will allow some workers to choose to work fewer hours because they will be able to maintain health insurance coverage outside of employment. The CBO noted that the decrease would not lead to a corresponding increase in unemployment or underemployment (emphasis added):

The reduction in CBO's projections of hours worked represents a decline in the number of full-time-equivalent workers of about 2.0 million in 2017, rising to about 2.5 million in 2024.

[...]

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, so it will appear almost entirely as a reduction in labor force participation and in hours worked relative to what would have occurred otherwise rather than as an increase in unemployment (that is, more workers seeking but not finding jobs) or underemployment (such as part-time workers who would prefer to work more hours per week). [Congressional Budget Office, 2/4/14]

Fox: Lack Of “Job Lock” Enables Laziness, Degrades “Uniquely American” Desire To “Work More”

Fox & Friends Hosts Praise Job Lock. On the February 10 edition of Fox News' Fox & Friends, co-hosts Brian Kilmeade, Elisabeth Hasselbeck, and Clayton Morris suggested that job lock is a positive force in a time of high unemployment, attacking workers who may benefit from increased economic choice as people who “demand that society” subsidize their efforts to pursue their dreams. From Fox & Friends (emphasis added):

MORRIS: But being locked in, that's the whole argument. Well, you know the problem is -- you get a job and then you just feel so locked in, and that's what they're saying. So the spin is now, no more lock in. So if you have a job and you just don't like that job, you can just leave because you know everyone's hiring across the country. So many people are hiring right now, if you just don't like your job, you can just float across the street and start working there.

[...]

KILMEADE: But I'll give you a real-life example. A friend of mine was a painter and a sculptor. And what she did is have another job nine to five, and then she would go to flea markets and buy booths and try to get that going. And she would do great on the weekends. And when she was finally ready to open up five days a week, she actually did that.

HASSELBECK: But that's still a job --

KILMEADE: It's a job. But she didn't demand that society allow her to get health insurance so she could pursue her dream. She got two other jobs in order to be able to do what she really wanted to do until she was ready. [Fox News, Fox & Friends, 2/10/14] 

Fox & Friends: “Work? What For? Dems Defend Disincentivizing Work.” In the same segment, on-air graphics hyped supposed “job loss” under the ACA and attacked statements from Democrats praising the CBO's findings, claiming that “Dems decry hard work”:

[Fox News, Fox & Friends, 2/10/14]

Fox's MacCallum: “Disturbing” To Lose “Uniquely American” Desire To “Work More, Work Harder” And Take On “Two To Three Jobs.” On the February 10 edition of Fox News' America's Newsroom, co-host Martha MacCallum claimed that both political parties are trying to “twist” the “news that 2.3 million jobs will be eaten up by Obamacare,” arguing that it is “uniquely American” to want to “work more, work harder” and “take on two and three jobs to make ends meet.” The Fox host went on to suggest that a shift towards more worker flexibility would be “disturbing”: 

MACCALLUM: I find the comparison to Europe one that many people might think is disturbing, Kirsten, because, you know, the Europeans have their way of life but what's uniquely American is that people tend to want to work more, work harder, make as much as they can for their families. Some people are working two and three jobs to make ends meet. And that is a value that has to be considered for a long time to be something, you know, that has merit.

[...]

MACCALLUM: It's this overall philosophy, Katie, that it is better to work less and to perhaps have the government help you out a bit more. And that's really the debate that's at question here.

KATIE PAVLICH: Well, we've seen throughout history and in the European model that that doesn't work in the long term economic picture. Like you were saying, Martha, the American work ethic is something that is unique [...] You want to talk about what's hurting Americans getting home and having to work more to get health insurance, it is Obamacare. We've seen companies like UPS cut spousal insurance as a result of rising costs, we've seen other companies do that as well. The way you get people insurance is by allowing them to move from job to job that offers health insurance. And the way that happens is to have a stronger economy so that jobs are available to do that. And at this point those jobs aren't available. So sure, maybe people are locked in their jobs but it isn't because they want to keep their health insurance, it's because there aren't other jobs to go to to give them that flexibility. Now saying they shouldn't have to work is not going to help us in the long term. [Fox News, America's Newsroom, 2/10/14, emphasis added]

But By Creating Flexibility, ACA Will Increase Short-Term Opportunity For Unemployed ...

CBO: When Some Workers Voluntarily Leave Job Market, Jobs Open Up To Unemployed Workers. According to the CBO report, the projected changes in the labor supply due to reduced job lock would increase opportunity for unemployed workers, allowing them to shift into positions freed up by the voluntary reductions in the supply of labor: 

If changes in incentives lead some workers to reduce the amount of hours they want to work or to leave the labor force altogether, many unemployed workers will be available to take those jobs--so the effect on overall employment of reductions in labor supply will be greatly dampened. [Congressional Budget Office, 2/4/14]

CBO: ACA Will Stimulate Economic Growth And Create Jobs. The CBO was also optimistic about the ACA's overall economic effect, estimating that the law will have the stimulative effect of “raising overall demand in the economy”:

[T]he ACA's subsidies for health insurance will both stimulate demand for health care services and allow low-income households to redirect some of the funds that they would have spent on that care toward the purchase of other goods and services--thereby increasing overall demand. That increase in overall demand while the economy remains somewhat weak will induce some employers to hire more workers or to increase the hours of current employees during that period. [Congressional Budget Office, 2/4/14, emphasis added]

CBO Director: The ACA Will Reduce Unemployment. The Washington Post highlighted a discussion between Rep. Chris Van Hollen (D-MD) and CBO director Douglas Elmendorf on the finding that the ACA will boost demand and decrease unemployment:

“When you boost demand for labor in this kind of economy, you actually reduce the unemployment rate, because those people who are looking for work can find more work, right?” Van Hollen asked Elmendorf.

“Yes, that's right,” Elmendorf said.

 Elmendorf added that the factor Van Hollen had identified was something CBO thinks “spurs employment and would reduce unemployment over the next few years.”

So there it is: The CBO report found the opposite of what some foes of the law claimed. [The Washington Post, 2/5/14] 

... And Boost Entrepreneurship

NY Times: “The Affordable Care Act Could Spur Entrepreneurship By Easing Job Lock.” As The New York Times reported in November 2013, studies have shown that ending job lock could spur entrepreneurship:  

Some experts say this type of flexibility may have a big impact on the economy over all.

''Assuming we get the website working, it's going to be the biggest step we've had in a long time in the U.S. in terms of changing the structure of the economy,'' says Craig Garthwaite, assistant professor of management and strategy at Northwestern University's Kellogg School of Management. Mr. Garthwaite is a co-author of one of two recent studies that conclude that the Affordable Care Act could spur entrepreneurship by easing job lock -- where people stay in a job mainly for the health insurance. [The New York Times, 11/23/13]

Urban Institute Study: ACA Will Enable 1.5 Million Entrepreneurs To Start Businesses. A recent study from the Urban Institute and Georgetown University Health Policy Institute looked at the ACA's likely effects on entrepreneurship and self-employment and found that the health care reform law will likely enable 1.5 million workers to become self-employed:

Research evidence of pre-reform job lock and empirical research demonstrating a significant increase in self-employment because of significant health care reforms or availability of Medicare benefits, strongly suggests that the level of self-employment in the United States will increase as a consequence of full implementation of the ACA. Taking into account the most recent findings in the economic literature on this topic, we make a rough estimate that the number of self-employed individuals will increase by about 1.5 million, a relative increase of more than 11 percent. [“Timely Analysis of Immediate Health Policy Issues,” May 2013] 

Kaufmann-RAND Institute Study: Bundling Health Insurance And Employment “May Discourage Business Creation.” A 2011 Kauffman-RAND Institute for Entrepreneurship Public Policy (KRI) study on the effects that the US' employer-sponsored health insurance system has on business creation found that increased flexibility in health coverage is likely to increase entrepreneurship. The study's key findings:

• Individuals with access to a spouse's health insurance plan are much more likely to become self-employed. The study found consistent evidence that men and women with poor family health and no access to spouse health insurance were significantly less likely to give up an employer plan and start a new business than were those with access to insurance through their spouses. RAND's estimates suggest that entrepreneurship lock for men is just over 1 percentage point relative to the annual base business creation rate of 3 percent. Although business entry rates were lower for women, similar patterns across health insurance coverage emerged.

• Self-employment rates rise when Medicare becomes available. The study also found a large and statistically significant increase in business ownership rates during the month when a worker turns 65 and qualifies for Medicare. Analyses determined that self-employment rates did not jump up at other ages (55-64, 66-75). Further, the increase in business ownership in the month an individual turns 65 was not due to other factors, such as retirement, Social Security, or pension eligibility.

In conclusion, KRI's analyses provide some evidence that entrepreneurship lock exists, which raises concerns that the bundling of health insurance and employment may discourage business creation. The implication of this research is that the availability of affordable health insurance for the self-employed has an important impact on whether individuals are likely to become entrepreneurs. [“Does Employer-Based Health Insurance Discourage Entrepreneurship and New Business Creation?” January 2011]

Economists Agree: This Is Good News For American Workers

Economist Dean Baker: ACA Allowing Some Americans To Work Less Is “A Huge Plus.” In a February 4 Los Angeles Times post, Michael Hiltzik quoted economist Dean Baker's reaction to the CBO report's findings: 

The CBO projects that the act will reduce the supply of labor, not the availability of jobs. There's a big difference. In fact, it suggests that aggregate demand for labor (that is, the number of jobs) will increase, not decrease; but that many workers or would-be workers will be prompted by the ACA to leave the labor force, many of them voluntarily.

As economist Dean Baker points out, this is, in fact, a beneficial effect of the law, and a sign that it will achieve an important goal. It helps “older workers with serious health conditions who are working now because this is the only way to get health insurance. And (one for the family values crowd) many young mothers who return to work earlier than they would like because they need health insurance. This is a huge plus.” [Los Angeles Times,  2/4/14]

Economic Policy Institute: ACA Giving Americans More Employment Flexibility Is An “Unambiguously Good Thing.” Economist Elise Gould of the Economic Policy Institute explained how workers' ability to maintain health coverage even when reducing working hours reduces economic insecurity:

These are purely voluntary labor supply decisions, not people being laid off from jobs they'd rather keep, or people looking for work and being unable to find it. Working-age adults can now choose, without regard to their need to secure health insurance, whether they wish to supply labor and how much labor they wish to supply to the labor market. This is unabashedly a good thing for them.

Opponents of the ACA will try to paint these CBO estimates as evidence that the ACA has “killed jobs” or something like it. That's flat wrong. What the ACA has done is expand the menu of options available to Americans about how to obtain decent health insurance without having their income fall to poverty levels. That menu used to include one option--“go to work for a large employer.” The fact that it's broader now is an unambiguously good thing. [Economic Policy Institute, 2/4/14]

Economist Paul Krugman: Workers Stand To Gain From Increased Flexibility. Nobel-prize winning economist Paul Krugman noted that workers who choose to cut hours or leave the labor force “presumably do so because they gain something that is, to them, worth more than the foregone income”:

When workers choose to work less, by contrast, they presumably do so because they gain something that is, to them, worth more than the foregone income: more time with their children, an earlier retirement, etc.. Now, in making these choices they won't take into account the spillovers to the rest of society that come from their paying less in taxes or receiving more in benefits; so you probably don't want to think of the reduction in labor supply as a net economic good. But it's surely a smaller cost than the headline effect on GDP.

A somewhat educated guess (I'm thinking of the de facto marginal tax rate on lower-income workers, which for the wonks out there is the only source of first-order welfare effects from a small change in labor supply) is that the net economic losses from the kind of labor supply effect CBO analyzes are on the order of 0.3 percent of GDP.

Oh, and that's in the long run. In the next few years, with the economy still depressed, it's all positive: reduced work by some will open up job opportunities for others, and higher incomes for beneficiaries will mean higher overall employment. [The New York Times, 2/6/14]