The Impact of Obamacare on the Labor Market

February 17, 2015

Dean Baker
Al Jazeera America, February 17, 2015

View article at original source.

Last year the Congressional Budget Office (CBO) released a detailed analysis of the Affordable Care Act (ACA) that projected it would reduce the number of hours worked by 1.5 to 2.0 percent. This prompted yet another round of Republican denunciations that “Obamacare” was a job killer. The Democrats largely responded by running and hiding.

Almost no one bothered to read the analysis and note what it actually said. The projection was not that employers would cut back on the number of jobs they offered. The ACA gives people the option to buy insurance through the exchanges or in some cases to get it through Medicaid. This means that they don’t have to work at full-time jobs just to get health care insurance from an employer. The CBO was projecting that many workers would take advantage of the opportunity get insurance outside of employment and therefore work less or possibly not work at all. The real story here concerned the end of health-insurance-related “job lock”.

Job lock is when workers feel trapped in jobs that they don’t like, or for which they are ill suited, because they need to get health insurance from their employer. This dynamic prevents them from leaving since they don’t want to take the risk that they or their family members would be unable to get insurance in the individual market. This problem was especially serious for people with existing health conditions, because insurers charged high rates to cover people with chronic health issues, if they would provide insurance at all.

The ACA largely eliminated this problem by allowing workers to get insurance either from Medicaid or the exchanges, regardless of their health. In one of the ACA’s key reforms, insurers are no longer able to discriminate against workers based on existing conditions. Under the ACA, premiums are age-based, but a 40-year-old cancer survivor pays the same rate as a 40-year-old marathon runner in perfect health.

This change in the insurance market gives workers more freedom on the job. Past research indicates that we should see important changes in the labor market as a result of this new freedom. For instance, many parents of young children would opt to work part-time or temporarily leave the labor market in order to spend more time with their kids. The research also suggests that some people would quit their jobs to start their own businesses and that many older workers in poor health may take advantage of the opportunity to retire early before they are eligible for Medicare.

The employment data for 2014 show evidence for all three effects. The clearest indicator is the increase in voluntary part-time employment, which was more than 1 million higher at the end of 2014 than at the end of 2013 — an increase of 6 percent. Note that these are people who say that they want to work part time; involuntary part-time employment fell by more than 1 million over the same period.

Economist Helene Jorgensen and I analyzed the data through the first six months of the year. We found that the increase in voluntary part-time employment was almost entirely among young parents. Thanks to the ACA, it appears that more than 1 million parents of young children are now able to spend more time with their kids.

Evidence also suggests an increase in self-employment, although the impact is not as large. In the last three months of 2014 self-employment was up by an average of 480,000 compared with the last three months of 2013. This is an increase of 3.5 percent over the same months of 2013.

It also appears that a larger number of older workers are leaving the labor force, which is consistent with the prediction that pre-Medicare age workers in bad health would take the opportunity to get insurance through the exchanges and retire early. In both 2012 and 2013 workers over the age of 55 accounted for almost two-thirds of the growth in employment. In 2014 the over-55 age group accounted for just 37.6 percent of the growth of employment. The ACA appears to be the most obvious explanation for the reduced share of employment growth going to older workers.

This evidence is all preliminary; it will take more time and a fuller analysis of the data to be certain that the ACA is having a substantial impact in ending job lock. But this evidence certainly points in this direction.

These freedom- and security-enhancing consequences are a hugely underappreciated aspect of the ACA. It is of course important to extend insurance and provide health care to the uninsured, but empowering the tens of millions of workers who already had insurance on the job is also an enormous benefit. This will substantially boost the bargaining leverage of workers and make it easier to find jobs that don’t interfere with family or other commitments. In a context where jobs are becoming less stable over time, the security provided by the ACA is sure to grow in importance.

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