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Home Publications Blogs Beat the Press Marc Thiessen Says Last Year's Stock Market Run-Up Led to a Huge Cut in Pay

Marc Thiessen Says Last Year's Stock Market Run-Up Led to a Huge Cut in Pay

Monday, 10 February 2014 14:58

Many people who have retirement funds in the stock market are able to retire this year as a result of the big run-up in the stock market last year. According to Washington Post columnist Marc Thiessen this means that these people will see a big cut in their pay. After all, retired people won't be collecting paychecks.

I'm not making this up, that is the argument in Marc Thiessen's latest column, cleverly titled, "Obamacare's $70 billion pay cut." Thiessen's basis for claiming that the Affordable Care Act will lead to a $70 billion cut in pay is the Congressional Budget Office's assessment that it will lead to a reduction in aggregate compensation of 1.0 percent between 2017-2024.

He tells readers;

"How much does that come to? Since wages and salaries were about $6.85 trillion in 2012 and are expected to exceed $7 trillion in 2013 and 2014, a 1 percent reduction in compensation is going to cost American workers at least $70 billion a year in lost wages."

"It gets worse. Most of that $70 billion in lost wages will come from the paychecks of working-class Americans — those who can afford it least. That’s because Obamacare is a tax on work that will affect lower- and middle-income workers who depend on government subsidies for health coverage."

Sounds really bad, right?

Well first let's go back to the CBO report cited by Thiessen.

"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)"

We checked with Mr. Arithmetic and he pointed out that if hours fall by 1.5 to 2.0 percent, but compensation only falls by 1.0 percent, then compensation per hour rises by 0.5-1.0 percent due to the ACA. In other words, CBO is telling us that for each hour worked, people will be seeing higher, not lower wages. That is the opposite of a pay cut.

However because people may now be able to afford health insurance either without working or by working fewer hours than they had previously, many people will choose to work less. That is worth repeating since it seems many folks are confused. Because people may be able to afford health insurance either without working or perhaps by working less than they had previously, many people will choose to work less.

Yes, just like people will opt to retire because they have more money in their retirement accounts, some people will opt to work less because Obamacare has made it easier to afford health care insurance. This is a voluntary decision that CBO is calculating people will make.

Now Mr. Thiessen is apparently convinced that the decision to work less will be the wrong decision for these people:

"most of that $70 billion in lost wages will come from the paychecks of working-class Americans — those who can afford it least"

but apparently the working-class Americans making the decision believe otherwise. Obviously the answer here is for Mr. Thiessen to go around to all the people who quit their jobs or cut back their hours because of Obamacare and explain to them why they have made a bad choice. Maybe he will change some minds and get people to work harder, but on its face, it seems likely that these working class people would be better positioned to judge how much they need to work than Mr. Thiessen. 




Comments (13)Add Comment
Given Marc Thiessen's previous jerb
written by ifthethunderdontgetya™³²®©, February 10, 2014 3:02
Promoting torture...it's probably better if working class people never have to suffer his presence.

Working Less for More Money
written by Robert Salzberg, February 10, 2014 3:04
Partially because I knew I could get Obamacare before my COBRA ran out, I quit my full-time job with benefits last June.

I'm working part-time for a company that treats their employees much better and am making around 15% more for time worked even with factoring in the benefits per hour I would have gotten if I continued to work full-time.

The benefits to my physical and mental health from not working full-time + some expected overtime + mandatory every 4th weekend at my last job is priceless.
Health Care is a Giffen Good
written by Last Mover, February 10, 2014 4:12

A plausible explanation of why workers choose to work less once they break free from employer provided health care given price-coverage-equivalent care available on the ACA exchanges, is that health in America is a Giffen Good.

A Giffen Good is a good priced so high and is so essential it creates an upward sloping demand curve. The higher the price the more is consumed.

Technically it means the usual substitution effect that would result in less quantity consumed is swamped in the opposite direction by the (reduced) real income effect for more quantity consumed caused by the rising price.

Practically it means for the 2.5M workers in question, health care was so essential they were forced to give up other goods and services, as well as their time, in order to have (more) health care at the rising prices.

As health care prices kept increasing - especially those outside employer health care relative to that available tax free from an employer - real income fell so sharply that workers actually consumed indirectly through more hours worked, more health care through an employer than they could possibly access individually, especially given the gross failure of the latter to provide any effective coverage at all in many cases.

The proof health care was a Giffen Good for example, is how many would continue to consume (more) health care even until bankruptcy.

Once workers could access similar price-coverage health care insurance beyond particular employers, the negative income effect that drives demand for a Giffen Good was reduced, because real income itself increased in terms of monetary and non-monetary benefits gained at the margin, when equivalent health care was available despite less or no hours worked.

In short, the reason the political right is apoplectic over this effect and framing it as a forced cutback in the aggregate supply of labor, is because it represents an escape from the captive monopoly pricing of health care by those most abused by it, so powerful it turned health care into a Giffen Good.

Poor babies. The working class finally gets a break and what do they get? Condescending lectures that they actually got an unwanted undeserved pay cut rather than a free choice to avoid the extortion of Giffen Good prices from health care predators.
written by Dryly 42, February 10, 2014 5:21
This is a new one. Prior reasons set forth by the Radical Republicans for not enacting fiscal stimulus to operate in harmony with an expansionary monetary include: lack of job skills(apparently sudden and unforeseen since 96% of the workforce was employed in the Clinton administration), workers had become lazy and indolent(or according to Mitt 47%), technological progress(oh, those ubiquitous robots), poor schools and lack of education, can't do math or science(Sputnik was blamed on the kids). In reality these are all merely made up to as sophistry as a needed excuse not to use fiscal stimulus to spur economic growth and employment. Now we can add the stock market(not sure this will fly, perhaps this is a bit too nonsensical).
Thank you CBO!
written by Patrick in Twisp, February 10, 2014 6:12
I haven't had this much fun in a long, long time. This is going to be known as the Great Reading Comprehension Turkey Shoot of 2014.
We Don't Know What We Don't Know
written by Larry Signor, February 10, 2014 7:57
The problem here is the CBO had the temerity to publish a projection, sort of like a weather forecast. We all know forecasting is an iffy business, but the CBO has some data to back up its projection. The ACA critics have nothing. The one thing we do know about the ACA is that more people have access to healthcare than ever before. Get it? The point of the law.
So what about all of the work these folks that voluntarily retired were going to do?
written by Perplexed, February 10, 2014 10:27
No one seems to be addressing what happens when all of this work goes unaccomplished (or were these early retirees not really going to accomplish anything at work anyway?) Might there be at least some chance that a few of the four people chasing every one job opening might be hired to that work and the $70 billion might be spent anyway? What does even the CBO think might happen with this undone work (or is the 1% reduction entirely based on getting that work done at a cheaper rate from more desperate workers?)
written by Ryan, February 11, 2014 6:48
I really fail to understand why this issue is so hard for people to understand. By the same logic, we've suffered a massive pay cut due to the New Deal. After all, 40 hours isn't some magical number given from on high. Why should 40 hours be the basis for comparison. Why not 60 or 80 hours? After all, some must resort to working such long hours.
written by Alex Bollinger, February 11, 2014 8:37
"but apparently the working-class Americans making the decision believe otherwise."

And therein lies the heart of the GOP position on this topic. They don't want the peasants to decide if they need to work or not; they just want the peasants to work.
nice to see Casey get his props.
written by pete, February 11, 2014 8:40
CBO (and I see Dean now) using Mulligans analyis, essentially, that paying people not to work will, ta dah, cause people to work less. Same works for unemployment insurance. So, indeed, what is the surprise. Basic labor economics at work.
written by skeptonomist, February 11, 2014 8:43
Once again, the CBO can't foretell the future and they don't really know that there will be a fall in hours of 1.5-2%. To start with, they don't know how many people will drop out. At present, anyone dropping out would be replaced from among the unemployed, so the latter will gain the income that the dropouts will choose to forego and total demand is not reduced. And if employment gets tighter later, then as Dean says wages will go up. The primary effect of people dropping out is to reduce the workforce, not hours. Basically, the foolish discussion in the media, including pundits like Thiessen, is about the second-order effects of CBO "estimates" which are no more than guesses.
written by sherparick, February 12, 2014 8:14
Dean, I hope you can disentangle Casey Mulligan's latest piece in the NY Times. He engages in Neoclassical deductions, without using actual empirical evidence or numbers to support his arguments.

Casey of course, as believes unemployment is the result of "supply shocks" caused by large numbers of the proles deciding to go on vacation because of Government benefits and policies. (One empirical problem for Casey is that between Dec 2007 and June 2009, when the policies of the Republican administration were still in control, was the period when 8,000,000 proles decided to go on vacation. However, after June 2009 to the present, when the policies of the job killer Obama have prevailed, job creation has averaged about 150,000 a month per Calculated Risk. I need someone to explain the conundrum?
Baker's arithmetic is fatally flawed
written by Jim Agresti, February 13, 2014 4:23
Baker's arithmetic is fatally flawed, because it wrongly assumes that Obamacare will drive workers with different incomes out of the labor force at the same rate.

In fact, the CBO report explicitly states that Obamacare will cause "reductions in wages or other compensation."


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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.