NCPA - National Center for Policy Analysis

ObamaCare Will Contract the Labor Market

October 28, 2013

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, says Veronique de Rugy, a senior research fellow of the Mercatus Center.

Adding to the uncertainty is the implementation of President Obama's health care law, ObamaCare.

  • The health care law requires employers with more than 50 workers to provide health insurance to all full-time employees (defined as working 30 hours or more per week) or pay a $2,000 penalty per worker.
  • 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.

ObamaCare's tax increases will have a negative impact, as well. University of Chicago economist Casey Mulligan has done a significant amount of research on this issue.

  • 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.
  • 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."

Finally, there is another group of people who may have a strong incentive to work less under the new law. ObamaCare requires nearly everyone to buy insurance.

  • Someone between 138 percent and 400 percent of the poverty line is qualified to receive a federal tax subsidy for health insurance bought on a government exchange.
  • People making just above the 400 percent threshold don't.
  • It is not crazy to think that some people will try to reduce their income below the 400 percent level among other ways by working a little less.

While there's no way to know how many Americans will decide to work less or even how much less to benefit from the subsidy or as a response to higher taxes. But we can be sure it won't be zero and there is a chance it will be many.

Source: Veronique de Rugy, "Why ObamaCare Will Make America Less Productive," Washington Examiner, October 18, 2013.


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