The Congressional Budget Office, usually the source of staid nonpartisan analyses studied only by experts, stirred up a hot debate last week. Will the Affordable Care Act have a good impact on our labor market, or a decidedly bad impact?
The partisans were out in force, and you wonder if they read the same report.
The Obamacare haters in the Republican camp read the report as describing the pushing of 2 million Americans out of the workforce by 2017 and 2.5 million by 2024.
Obamacare advocates in the Democratic camp read the report as confirming that 2 million workers would be able to escape job-lock, instead of being tied to employers for health coverage.
In reality, both are right.
First, the CBO made it clear that a long-term decline in labor force participation rates from 2017 to 2024 will come mainly because of our aging population. Dont forget, there are a lot of baby boomers working out there, and theyll have to retire someday.
Second, the Affordable Care Act will, in fact, reduce the number of full-time workers.
But before you get too concerned, the CBO says this will come 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. In other words, businesses will want the workers, but the Affordable Care Act will allow them to choose other options.
If some people reduce their hours or leave the labor force, many unemployed workers will be available to take those jobs.
Third, low-income workers who get subsidized insurance through the Affordable Care Act will spend money on other goods and services, thereby increasing overall demand for products. That, in turn, will hopefully drive additional hiring to supply that demand.
Fourth, the Affordable Care Act will make it easier for some workers to get health insurance outside the workplace, prompting those workers to take jobs that better match their skills.
As we mull these facts, we would do well to recall that while labor force participation dropped overall during the recession, the decrease was concentrated among younger workers. Labor force participation among older workers actually increased.
So reducing labor force participation among the older population, who can now get health insurance before they are eligible for Medicare, might help younger workers and, more generally, raise wages. It could be a part of many solutions we will need to rebuild the middle class for a new generation of Americans.
With the Affordable Care Act, people in their late 50s or early 60s who stay in a job for health coverage can retire. A parent can leave a job to raise a child. A budding entrepreneur can leave a job to start a business. In fact, a May 2013 study by the Urban Institutes Health Policy Center and Georgetown Universitys Health Policy Institute estimated that in California in 2014, self-employment without the Affordable Care Act would be 1.9 million and, with the law, 2.2 million an increase of 248,000.
So the push out of the workforce that the Affordable Care Act allows yes, it is real might be a good thing, especially for young people unable to get jobs as older workers stayed in the workforce during the recession. Social Security, passed in 1935, had that effect during the Great Depression. Obamacare will bring many changes; work flexibility is one to embrace.