A Simple Way To Avoid The Job Losses From Obamacare

In general, Republicans have had two objections to Obamacare: (1) It will destroy jobs, and (2) it will create dependency and make people work less. The Congressional Budget Office has a new report with an appendix estimating the impact on the labor market of Obamacare. Although a lot of news media outlets covered this in terms of Obamacare destroying jobs, the actual report says the reduction in employment is from people working less.

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

I’m not sure why the media went with talking point (1) for a report that suited talking point (2), given both are longstanding conservative objections there doesn’t appear to be an obvious reason to intentionally misread the report. (Paul Ryan managed to get it right).

The implications of reducing labor supply are quite different than the implications of reducing labor demand. To start with, it means a tighter labor market, and so higher wages. It also means we’ve changed the labor-leisure trade-off, particularly for low-income workers. Paul Krugman has an argument that this is okay because our old healthcare system had biased the trade-off in the other direction, but your view on this is going to be related mainly to whether you think more leisure and less output is a good thing or a bad thing. (And also on the distribution of that additional leisure…the majority intuition is probably that this is good for low-income parents but bad for young workers just starting out who now have less monetary motivation to work long hours. I disagree and see increases in leisure as mostly good, but that’s a discussion for a different post).

Now, most of disincentive to work comes not just from access to healthcare, but from the way in which Medicaid cuts off after a certain level of income is reached and the subsidies for buying on health exchanges phase out as income increases. These incentive effects are never as strong in the empirical data as economic theory might have you believe, but they are still there.

There’s actually a really simple way to avoid these disincentive effects. Universal healthcare. If everyone’s covered regardless of income we get the benefits of expanded health insurance without the disadvantages of means-testing. This also cuts administrative costs and means less data has to be revealed. In general, because healthcare markets tend to be extremely dysfunctional it also means lower costs. Now, I realize we’ve already had the whole universal healthcare debate and we’re not going to be making another substantial change to our healthcare system…I’m just pointing out that there are only really two alternatives to means-tested subsidies. One is universal healthcare, and the other is letting people go without coverage.


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