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A Project of The Annenberg Public Policy Center

The ACA: Losing Jobs vs. Choosing Not to Work

House Majority Leader Eric Cantor falsely claims that a new report confirms the long-held Republican belief that “millions of hardworking Americans will lose their jobs,” because of the Affordable Care Act. The nonpartisan Congressional Budget Office report says more than 2 million people will decide not to work, or will decide to work less, due to the law – not that they will “lose their jobs.”

Shortly after the CBO released the report that updated, and nearly tripled, its initial estimate on the reduction in the supply of labor due to the Affordable Care Act, Cantor fired off two messages via Twitter.

Cantor, Feb. 4: The CBO’s latest report confirms what Republicans have been saying for years now.

Under Obamacare, millions of hardworking Americans will lose their jobs and those who keep them will see their hours and wages reduced.

That’s not what the CBO report said. The report estimated a reduction in full-time-equivalent employment of about 2.3 million by 2021. But the drop is “almost entirely” due to a reduction in “the amount of labor that workers choose to supply” (see pages 117-127).

CBO, Feb. 4: 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).

That last part — which notes that the drop is not due to an increase in unemployment or underemployment — makes clear that comments like Cantor’s are misleading.

Back in August 2010, the CBO estimated the health care law would “reduce the amount of labor used in the economy by a small amount—roughly half a percent,” a percentage CBO Director Douglas Elmendorf later pegged at 800,000 jobs. When Republicans, including Michele Bachmann, misused that report to claim the ACA would “kill 800,000 jobs,” we noted that the figure was mostly due to some Americans deciding to work less.

Why? The CBO has explained that those with low incomes would have more financial resources due to the expansion of Medicaid and subsidies to purchase health insurance, which would “encourage some people to work fewer hours or to withdraw from the labor market.”

Plus, the CBO said, some workers nearing retirement will retire earlier than normal because the law provides more protections for health insurance, such as limiting how much more companies can charge older people and requiring the coverage of preexisting conditions. In other words, the law will allow people the ability to leave their jobs or cut back their hours without fear of losing their health insurance.

Republicans also have made claims before about the ACA leading to an increase in part-time employment, but our previous analysis of trends in the number of people working part-time for economic reasons didn’t bear that out. And the CBO report confirms that “there is no compelling evidence that part-time employment has increased as a result of the ACA.”

CBO, Feb. 4: In CBO’s judgment, there is no compelling evidence that part-time employment has increased as a result of the ACA. On the one hand, there have been anecdotal reports of firms responding to the employer penalty by limiting workers’ hours, and the share of workers in part-time jobs has declined relatively slowly since the end of the recent recession. On the other hand, the share of workers in part-time jobs generally declines slowly after recessions, so whether that share would have declined more quickly during the past few years in the absence of the ACA is difficult to determine.

In any event, because the employer penalty will not take effect until 2015, the current lack of direct evidence may not be very informative about the ultimate effects of the ACA.

In fact, the CBO report says in the short term (2014 to 2016) the law will increase employment while the economy is still weak.

With unemployment expected to remain higher than normal over the next few years, the CBO states, even if some people decide to work less, “other applicants will be readily available to fill those positions and the overall effect on employment will be muted.” Meanwhile, the report notes, health care subsidies to low-income Americans will lead to those people spending money on other things — which will create jobs.

CBO, Feb. 4: [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.

The CBO report does provide some new fodder for Republicans who criticize the law for providing disincentives to work, much like other social welfare programs such as food stamps and welfare. The CBO says the ACA’s sliding scale of subsidies based on income will provide incentives for some not to work, or to work less, in order to avoid losing out on health care subsidies.

CBO, Feb. 4: Subsidies that help lower-income people purchase an expensive product like health insurance must be relatively large to encourage a significant proportion of eligible people to enroll. If those subsidies are phased out with rising income in order to limit their total costs, the phaseout effectively raises people’s marginal tax rates (the tax rates applying to their last dollar of income), thus discouraging work. In addition, if the subsidies are financed at least in part by higher taxes, those taxes will further discourage work or create other economic distortions, depending on how the taxes are designed.

Finally, we should note that the CBO cautions that its ACA projections are “highly uncertain,” due to the government’s “limited experience with this type of program” as well as the “many uncertainties about how the market for health insurance will function under the ACA.” Nonetheless, to twist the CBO’s projections on voluntary job reductions into job losses is misleading.

— Robert Farley