Obamacare Cuts Labor Supply-Congressional Budget Office

You can read all the following if you like, but the bottom line is that Obamacare reduces the incentive for people to work. Because more income will reduce the insurance subsidy, workers will choose to work less to preserve the subsidy – at least that’s what the CBO projects.

In effect, the people who cry most about inequality and the inability for the middle class to advance, construct a law that in several ways discourages higher income through work and also discourages hiring.

Would any household serious about its future; about climbing the economic ladder actually stop working or seek to reduce their hours worked? I find it incomprehensible; the Congressional Budget Office assumes it’s a fact.

I suppose in the progressive mind, helping people not to work is progress; like increasing recipients of SNAP or Medicaid or other benefits is dealing with poverty.


The economic projections that the Congressional Budget Office uses to construct its baseline budget projections are based partly on the agency’s estimates of how federal policies will affect the economy, provided that current law does not change. Those federal policies include the Affordable Care Act (ACA), which makes the supply of labor smaller than it would have been otherwise, CBO estimates. This paper describes the methods and calculations underlying that estimate.

The paper focuses on CBO’s estimate of labor supply effects in 2025. In that year, CBO estimates, the ACA will make the labor supply, measured as the total compensation paid to workers, 0.86 percent smaller than it would have been in the absence of that law. Earlier, in the 2016–2018 period, the estimated effects of the ACA on the supply of labor will be smaller, mostly because of delays in people’s responses to changes in law. By 2019, however, the ACA will reduce the labor supply by 0.80 percent, and the effect will rise slowly to the aforementioned 0.86 percent by 2025, CBO estimates. Because the ACA affects people who earn lower wages more than it affects people who earn higher wages, the estimated effect on the labor supply will be larger—a drop of 1.7 percent—if measured by the decline in total hours worked.

Those estimates reflect CBO’s assessment of how workers, employers, and others will respond to the many significant changes that the ACA has made to federal programs and tax policies. Some provisions of the law will raise effective tax rates on earnings from labor—for instance, by phasing out health insurance subsidies as people’s income rises—and thus reduce the amount of labor that workers choose to supply. Other provisions will reduce the labor supply by imposing higher taxes on labor income directly; an example is the ACA’s increase in the payroll tax that high-income workers pay for Medicare’s Hospital Insurance (HI) program. And the ACA’s health insurance subsidies will make it easier for some people to work less or stop working without losing health insurance coverage.

CBO’s current estimate of the ACA’s effect on the labor supply in 2025 is the sum of several components.

 Health insurance coverage expansions—comprising exchange subsidies, rules governing health insurance, and an expansion of the Medicaid program—are together expected to reduce the labor supply by 0.65 percentage points.

 The HI surtax is expected to reduce the labor supply by 0.12 percentage points.

Other major provisions—a penalty on larger employers that do not offer insurance coverage, an excise tax on certain high-premium insurance plans, and a penalty on certain individuals who do not obtain coverage—are together expected to reduce the labor supply by 0.10 percentage point.

The projected reduction in the labor supply would occur in several ways. Some people would choose to work fewer hours; others would leave the labor force entirely or remain unemployed for longer than they otherwise would. CBO did not split its estimate of the overall reduction into the reduction in the number of hours worked and the reduction in labor force participation, because in formulating its estimate, the agency generally relied on labor supply elasticities (which measure the change in the labor supply resulting from a change in tax rates) that combined those two decisions. CBO did, however, translate the reduction in the labor supply into an effect on full-time-equivalent employment. The labor force is projected to be about 2 million full-time-equivalent workers smaller in 2025 than it would have been otherwise.


Categories: Healthcare

2 replies »

  1. Everything the government does effects what workers and employers do.
    Limit workers to part time and you do not have to give benefits. keep your company under 50 employees and you don’t have to provide healthcare.
    Studies show that extending unemployment benefits, keeps people from finding a job.
    But as soon as the benefits are gone, magically they find a job.
    That is exactly what I saw with my sister, she got benefits for 18 months in CA. She found a job 30 days after her benefits

    What many in government do not realize is, a person working a full 40 hours or more per week has a more stable household and pays more in taxes. But, this gets lost in their feel good legislation and always ends up costing the taxpayers more than projected.

    What we need in this country is more taxpayers, not more government beneficiaries.
    This fact seems to be lost in the liberal progressives agenda.


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