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Home Publications Blogs Beat the Press Zero Evidence on Employer Mandate Costing Jobs or Cutting Hours

Zero Evidence on Employer Mandate Costing Jobs or Cutting Hours

Sunday, 07 July 2013 07:27

On the right side of the political spectrum it has become an article of faith that the employer mandates in the Obama health care plan reduced work hours and delayed hiring. In order to preserve his standing on the right, Ross Douthat included this mantra in his column today, asserting that this was the reason the Obama administration delayed the imposition of the mandate until 2015. 

Of course there is zero evidence for this claim. If the mandate was affecting hours or hiring we should have seen a falloff in both beginning in January of 2013. Under the law at the time, the number of full-time employees in calendar year 2013 would be the basis for the penalties assigned to firms. If these penalties were deemed onerous enough to influence hiring and hour decisions, that is when we would begin to see the impact.

One would struggle in vain to find any evidence of an impact. The economy added an average of 202,000 jobs a month in the first half of 2013, up slightly from an average of 183,000 a month in 2012. The workweek has averaged 34.5 hours in 2013, up a small fraction from 2012.

(Btw, those who believe the job killer story should be expecting a hiring boom in the second half of 2013 since the mandate is no longer applicable to this year's employment. Employers don't have to worry about crossing lines for 2014 because roughly 4 percent of workers leave their jobs every month. This means that if an additional employee or two pushes an employer over the 50 workers threshold in 2013, they will have no problem getting back below it in 2014. Businesses know this fact, even if the people who report on them don't.)

It would be quite surprising if there were any employment impact. Well over 90 percent of the firms that employ more than 50 workers already provide insurance for their workers, so they would be unaffected by the mandate. The cost per worker for the firms that declined to buy insurance and pay the penalty would be $2,000. (If they bought insurance for workers, the expenditure would presumably come largely out of workers' pay.)

Even if we take a minimum wage worker putting in just 30 hours a week, this cost would still only amount to only 17.7 percent of their annual wage. This figure falls to 13.2 percent if we assume a 40 hour work week. There is considerable research showing that increases in the minimum wage of this size have no measurable effect on employment. Given this reality, it is implausible that the administration was concerned about the "job-killer" impact of the employer mandate.

It is more likely that they were concerned that the measure would be very difficult to enforce. Not only does it require knowing how many hours a specific worker puts in over the year, the penalty also depends on the workers' family income, since it depends on whether or not they qualify for subsidies in the exchanges. This means that an employer would owe no penalty for not providing insurance to a worker married to a rich doctor, but would face a penalty if the worker gets divorced and experiences a sharp drop in income.

This sort of provision makes little sense in principle and will be extremely difficult to enforce in practice. It almost certainly would have been restructured or removed altogether from the final bill if it had passed in a more normal fashion, but because of the political situation at the time there was no opportunity to change it.

So contrary to the obligatory "job-killer" refrain of those on the right, the Obama administration was almost certainly not concerned about the employment impact of this provision in its decision to delay its implementation. They just recognized that it would be very difficult to enforce and made very little sense in terms of the larger structure of the policy. 

Comments (7)Add Comment
written by joel, July 07, 2013 9:19
My wife is a part-time hourly employee at a large organization, where "part-time" had historically been defined as anything less than 35 hours per week and the employer does not provide health insurance to part-time employees.

She was recently told that, due to the Obamacare regulations, her hours would be cut back to 29 hours per week (she had been working 34), beginning with the organization's new fiscal year on July 1. That's about a 15% cut in pay, which significantly affects our household budget.

So, that sort of thing is, in fact, going on. I'm a big believer in universal healthcare, but there are aspects of Obamacare that, it seems to me, need tweaking.
Maybe the employer mandate should just go?
written by Jennifer, July 07, 2013 9:48
Actually I thought this was useful column. Although I did not appreciate it when the ACA was being passed, Douthat is right about there being at least some agreement on this issue. The fact is that employer-provided insurance is really a fluke of circumstances post-WWII and is probably doing more harm than good. Employers, in spite of having a lot of leverage have done nothing to try to bring health costs down (this is one of Uwe Reinhardt's big complaints) and having employer-provided insurance gives people the illusion they are "paying" for their health care completely when in fact they are getting a government subsidy. It probably is better to have health care completely removed from the employer. Of course you'd need substantial federal involvement and a public option to really make that fly and Obama was not willing to go that far.
As for the ACA affect on hiring, I have to admit it seems like a real thing. I don't doubt Dean's logic, but there is just too much out there, and stories I have been told personally by individuals and groups similar to Joel's. It's quite possible that even though the ACA should not affect hiring it does for whatever reason, possibly including ignorance.
Part time employment
written by jonny bakho, July 07, 2013 10:04
@ joel. There are a number of these anecdotes which probably are happening. How larger is unknown.

When employers cut back "part time" from 34 to 29, they might compensate by hiring more part time. So this would not show up in the aggregate of hours worked, the numbers that Dean is analyzing. Our system dependent on employer provided insurance is doomed. Many employers will find it cheaper for themselves and lower cost for employees to give them a health care stipend and let the individual mandate provide coverage. Individuals would be encouraged to shop for less expensive plans and not sign up for benefits they don't need. The difference is made up in tax breaks- employer paid health benefits are not taxed. Thus the current code distorts health care. Once viable exchanges are in place the system will lurch away from employee provided health care.
written by foosion, July 07, 2013 10:21
@joel, employers like to blame others for unpopular things they do. If their reasons were genuine, they should promptly reverse the cutback in hours.
written by Last Mover, July 07, 2013 10:38
It is more likely that they were concerned that the measure would be very difficult to enforce.

Exactly. As already proven with guns, regulating health care just keeps law abiding poor sick people from getting it as sicko criminals continue to get it by faking they are poor.
ACA Logically is an Incentive to Provide Coverage
written by Ron Alley, July 07, 2013 1:21
The ACA sets up state exchanges that should be an incentive for employers, particularly those with 50 to 250 employees, to provide a healthcare plan. All the employer has to do is to establish a per employee contribution rate and adopt an exchange plan as its healthcare plan. All the employer needs to do to administer the plan is to withhold the employee contribution and make timely premium payments to the state exchange plan. This is a much better deal than many small employers, with little or no bargaining power, get today from the insurance. Over time, it prove less expensive than the double digit increases of recent years.
written by watermelonpunch, July 07, 2013 8:22
I think the issue is that the mandate is not costing jobs in aggregate. Though obviously yes, it's costing jobs to individuals, or costing individuals hours at their jobs... even if in fact the employers who are doing it are kind of ignorantly costing themselves in the long run.

I can think of 2 people myself.
One works as a temp at a company that has no more than 50 permanent direct employees, and employs probably more than 50% temps.
Another works for state government in a seasonal position where it's openly stated that the position has a limit of 9 months per year so the state does not have to pay that position health benefits.

But that doesn't mean the total number of jobs will decrease, nor does it mean a majority of jobs will be effected. That's a separate issue.

It probably is better to have health care completely removed from the employer.

Our system dependent on employer provided insurance is doomed.

Thank you. I've been saying both those things for 20 years now. And people have always looked at me like I'm crazy.

Sometimes people still do.
They want government to stay out of their healthcare, but they think it's wonderful I guess that their employer is pokin their nosy parker noses into it. *sigh* *roll eyes*

employers like to blame others for unpopular things they do


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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.