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Home Publications Blogs Beat the Press CBO Says Obamacare Will Raise Wages

CBO Says Obamacare Will Raise Wages

Tuesday, 04 February 2014 17:58

Apparently a lot of media folks have made such a habit of repeating Republican talking points that they can't see what is right in front of their eyes. The Republicans are touting the fact that the Congressional Budget Office (CBO) expects the Affordable Care Act (ACA) to reduce the number of people working.

Guess what? This was one of the motivations for the ACA. It is a feature, not a bug. There are a lot of people who would prefer not to work and would not work if they had some other way to get health care insurance. Imagine a 62 year-old with diabetes and other health conditions. No insurer will touch this person. If they can get insurance at all they are looking at bill that will certainly run well over $10k a year. If this person has a job that provides insurance they will keep it until they qualify for Medicare no matter how much of a struggle it is to go to work each day.

Now with the ACA this person will be able to buy insurance at the same price as anyone else in the age 55-64 age group. If they can get by on their Social Security and prior savings then they may well decide to retire early. They may also qualify for a subsidy in the exchanges. Is this an awful story? You be the judge.

The other likely scenario is the case of a mother with a newly born child. She may want to spend some time at home with her kid, but may have no other way to pay for her health insurance if she leaves her job. The ACA will give her an opportunity to get lower cost insurance (possibly with a subsidy). Again, is a mother taking some off to be with a new born kid a horror story?

Finally, we should be very clear about what CBO said on wages since there really is no ambiguity here. It said:

"According to CBO’s more detailed analysis, the 1 percent reduction in aggregate compensation that will occur as a result of the ACA corresponds to a reduction of about 1.5 percent to 2.0 percent in hours worked. (p 127)"

If hours fall by 1.5 to 2.0 percent, but compensation falls by 1.0 percent, then compensation per hour rises by 0.5-1.0 percent due to the ACA. If this is bad news for workers then someone must have been enjoying the new found freedoms in Colorado or Washington State too much.

Comments (11)Add Comment
written by Brett, February 04, 2014 5:26
The NYT has been on a roll lately of accepting GOP talking points and repeating them as fact/news. See for example http://fair.org/take-action/ny...the-right/

They are doing the same with this CBO report.
Obamacare Bailout Predicted to Turn a Profit
written by Robert Salzberg, February 04, 2014 6:39
The CBO report also predicted that the risk corridors in the ACA, "Obamacare Bailout" in right wing newspeak, is predicted to turn an $8 billion dollar profit. This shouldn't be news since a similar provision is in Medicare Part D and has turned a profit every year.


Will any right wing pundit, or Senator Rubio who was authored a bill to repeal the risk corridors, admit they were blowing things out of proportion?

Wonk note: The analysis of the impact on employment from the ACA is on pages 117 & 118 of the CBO report, which say the reduction in hours will be entirely due to voluntary reductions in hours worked. They also noted the unreliability of the predictions and the minimal short term impact on employment since there is no current shortage of workers to take up the voluntary slack.
Almost Entirely
written by Robert Salzberg, February 04, 2014 7:19
I meant almost entirely due to voluntary reductions in the previous post.
written by Yastreblyansky, February 04, 2014 7:32
Does this mean that the "discouraged workers" numbers in monthly jobs report are now something we should be less distressed about because they include people who used to be afraid to retire?
Working Free Markets are So Rare, When One Does Work It's a Spectacle
written by Last Mover, February 04, 2014 8:04

As Dean Baker points out on occasion, lower wages are generally a substitute for employer provided health care. But given the dramatic price difference for an individual policy compared to equivalent coverage from an employer, it was a false equivalency until now.

For health insurance (in contrast to providers) the ACA leveled the playing field to give individuals the same bargaining power as employers when acquiring insurance.

If the labor market was tighter under full employment, wages and/or employer provided health care would surge higher, including for part time work, and even more workers in selected areas may work less instead of the usual increase in more work offered for more pay. (For some, the supply curve of labor actually bends backward due to a "leisure" effect.)

Of course when conservatives see something like this they get red in the face and start screaming the government gravy train of subsidies is at it again, paying people not to work or forcing employers to let them go.

Well no, what actually happened is for once in our lifetime health insurers were required to compete for a living in a transparent free market on price for equivalent service available to all takers, including employers, employees and the unemployed ... the same kind of competition red faced conservatives preach for everyone but themselves.

That the result was some people choosing to work less is exactly equivalent to some CEO choosing to hit the golf course more often after a big bonus or raise, which of course the red faced gang would defend with their last dollar of unearned monopoly economic rent.
PBS Newshour today on this subject
written by jumpinjezebel, February 04, 2014 8:59
She had on a lady that explained this and a few other items and consequences from this new report - in a very understandable way. All of them show that the Republicans are congenital liers about this. Dirty Roy Blunt (Senator from Missouri) was on TV fronting a whole collection of them
ACA Unintended consequences, Low-rated comment [Show]
Reply to Barb
written by bokun59, February 05, 2014 10:50
So are you also complaining about all the OPM (Other People's Money) that the wealthy have sucked out of us over the last fifty years? Or are you happy that they have taken the greatest share of our wealth in modern times? Are you happy that they have bought tax and government policies that have kept wages stagnant for the last 50 years or so? Are you happy that they have managed to create a society wherein 50 percent of the population of our country shares one percent of the wealth? Are you happy your tax dollars are paying 'gubmint' benefits over thousands a year for each employee of Walmart and McDonalds so that, for example, the six Walton/Walmart kids have as much wealth as 100 million Americans?

As you say: someone has to pay.

Or maybe it is time for the rest of us to share in the wealth we have all created? Maybe we should take back some of the OPM from the wealthy? Maybe we should have a country where people have decent housing, decent wages, decent food, decent health care, and a decent life?

Or are the wealthy special people who DESERVE more than everyone else? Or do you enjoy hatin' on the poors?
Pass the joint...
written by Tom Maguire, February 05, 2014 2:56
"If hours fall by 1.5 to 2.0 percent, but compensation falls by 1.0 percent, then compensation per hour rises by 0.5-1.0 percent due to the ACA. If this is bad news for workers..."

Really? The CBO was perfectly clear that the work reductions would occur among lower income (and subsidy-eligible) workers.

If everyone earning less than $10/hour cuts back their hours, average wages rise FOR THOSE WHO KEEP WORKING even if no one gets an actual raise.

That is just arithmetic, and hardly a reason to celebrate this report.

So - the CBO projects that the working class will be working less due to ObamaCare disincentives associated with subsidy phase-outs, and today that is great news in ProgressiveWorld. When do we return to the defining challenge of the age and resume worrying about income inequality? Or do we really think the working class can slack their way to success?
written by DJB, February 06, 2014 9:47

"then compensation per hour rises by 0.5-1.0 percent due to the ACA"

written by Dan, February 06, 2014 10:44
I'm not sure they are saying compenatoin rises .5-1.0 percent.

When I read through the report, I thought it implied wages would increase, but I thought this section was not where it was implied. CBO explained the smaller reduction in wages as a result of labor supply reductions by the low-wage part of the labor force. CBO says,

"Because the largest declines in labor supply will probably occur among lower-wage workers, the reduction in aggregate compensation (wages, salaries, and fringe benefits) and the impact on the overall economy will be proportionally smaller than the reduction in hours worked."

I took this to mean that average wages would rise because low-wage workers are working less, not that any individual worker would make more.

I think where they actually failed to acknowledge higher wages was in the discussion that the fall in hours worked is due "almost entirely" to labor supply. Since labor supply will fall and demand will not or not fall as fast, this means wages must rise, according to Econ 101.


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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.