Obamacare's Pivot to Leisure

February 11, 2014 Topic: Economics Region: United States

Obamacare's Pivot to Leisure

Healthcare reform apologists forget they once predicted higher employment.

Until a few months ago, President Obama would regularly “pivot to jobs,” typically as cunning spin to distract from the consequences of the tax increases and regulatory restrictions his administration has worked so hard to implement. He would then launch attacks on “do-nothing” congressional Republicans, and mock them for attempting to repeal and replace Obamacare or for investigating scandals like the Internal Revenue Service’s targeting of conservative groups.

This past week has been strikingly different. After the nonpartisan Congressional Budget Office released a new report on the impact of the Affordable Care Act on the labor market and the economy more broadly, the president and his acolytes in media and academia pivoted to leisure. Why? The CBO now projects that the Affordable Care Act will reduce employment by the equivalent of 2.5 million jobs over the next decade. In an economy that over the past few years has seen millions of jobs disappearing, and millions of workers leave the labor force, that is economically harmful and politically poisonous news, requiring the development of new spin.

What is this new spin? Well, the CBO’s analysis shows that much of this impact is driven by labor supply, not labor demand. That is, workers will decide to work fewer hours or leave the labor force entirely, instead of getting fired by businesses that no longer wish to employ them. Why? Because the money they earn from working more is no longer worth it to them, for two reasons. One, other people are now picking up the bill for (part of) their health insurance, so they can sip cocoa on the couch in their pajamas and still be covered. And two, if they work more they risk losing Medicaid eligibility or exchange subsidies (the “substitution effect”). How do you spin that? Well, you declare employment “job lock,” and claim that workers faced with massive new work disincentives are “choosing” to spend more time cooking, composing lyrical poetry, and becoming entrepreneurs, as Professor Jonathan Gruber of MIT, a prominent Obama advisor on these issues, did in the LA Times
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Now, of course there will be some people who will be decidedly better off by the new public support they receive, and some people who will now be willing to start their own businesses as they can purchase health insurance on the individual market more easily. (Though who knows whether you’ll be able to keep those plans, even if you like them?) But let’s be clear: what the CBO says is that the central effect will be that people will work less. None of this is surprising, given that millions of Americans now face marginal tax rates that are effectively five to twenty points higher, as an additional dollar of income earned will make them lose five to twenty cents in health-insurance subsidies.

Supposedly even liberal economists know that this is bad for growth, bad for tax revenue, and bad for people now stuck in poverty traps that keep them from developing the skills and acquiring the experience required to become productive members of society. And there is solid evidence to suggest that they are, indeed, aware of this. A mere three years ago, 272 left-wing economists, Professor Gruber among them, produced a letter touting a study concluding that Obamacare would produce 250,000 to 400,000 jobs each year for the next decade (or, coincidentally, at least 2.5 million by 2024). Their prediction turned out to be false—they were off by at least five million jobs—and what’s happening now is the opposite of what they claimed to be a positive effect of the law. When they claim that the opposite of good is also good, it is hard to take them seriously.

The fact that their predictions were so wrong also makes it hard to take them seriously going forward. I’ve thought about possible explanations for their wrongness, and here’s my working hypothesis. These left-wing economists believe, like many historical materialists, that the total amount of income available to society is a given. When you redistribute, they say, the size of the pie remains the same; the only possible effect is that the poor, who now receive a larger share of total income, will spend more than the rich would have, thereby creating more jobs. They call themselves reality-based. It must be sad and lonely for them, struggling to survive in an environment so foreign to them.

Is there any way to confirm this hypothesis? Well yes, there is! A new letter, by a larger group of six hundred economists, including many of the usual suspects from the group of 272. This time our friends on the left discuss the minimum wage, which they want to raise from $7.25 to $10.10 (a bad idea, as my AEI colleague Michael Strain has explained). When you raise it, they say, no jobs will disappear, and yes, the poor will have more money and spend more of it, thereby creating more jobs!

Well, we know about their powers of deduction and foresight. Based on their track record, it seems likely that the 40 percent increase in the minimum wage that they support will lead to the disappearance of five million jobs instead of the zero they claim.

That’s a lot of jobs. But as Professor Gruber said when millions of Americans saw their health plans canceled, “We have to as a society be able to accept that.” For they know what’s best, no matter the consequences. And the administration seems quite comfortable with those consequences, leisurely pivoting from jobs to no jobs.

Stan Veuger is a resident scholar at AEI. His academic research focuses on political economy and applied microeconomics.