Zero Evidence on Employer Mandate Costing Jobs or Cutting Hours

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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who believe the job killer story should be expecting a hiring boom in the second half of 2013 since the mandate is no longer applicable to this year's employment.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.