Yesterday I blogged about how Obamacare will reduce the workforce by 2.5 million people over the next 10 years. This analysis focused on the employer side. That is, when it becomes more expensive for an employer to employ someone due to increased health care costs, the company will cut full time workers to part time, and eliminate positions.
But there is also a supply side issue. If people are now able to get subsidized/free health care, they will have less incentives to toil. For many, it makes more sense to not work, as the additional hours would disqualify them for free healthcare. Avik Roy has a post explaining this perverse incentive of Obamacare.
the law’s $2 trillion in subsidies for low-income individuals, which will discourage many from remaining in the labor force.
Let’s focus on that last point, because it’s the one that has been the least-discussed in the media. In the past twelve months, a spate of research from academic economists has concluded that the health law, by offering economic benefits to low-income individuals, will disincentivize some of these individuals from continuing to work. Casey Mulligan of the University of Chicago has been particularly persuasive on this front, publishing two paperswith the National Bureau of Economic Research.
Several economists, like Harvard’s Kate Baicker, MIT’s Amy Finkelstein, Texas A&M’s Laura Dague, and Northwestern’s Craig Garthwaite have found that rising unemployment is associated with an expansion of Medicaid. “Taking that research into account, CBO estimates that expanded Medicaid eligibility under the ACA will, on balance, reduce incentives to work.”
More significantly, as Casey Mulligan has warned, the new subsidized insurance exchanges will allow low-income workers to work less while maintaining the same effective income: what economists call theincome effect. In addition, because the subsidies decline on a sliding scale as you make more money, that sliding scale means that as workers work more, they make less per hour worked: what economists call the substitution effect.
For some people, it is now counterproductive to work. Working more hours will actually result in a net decrease in effective income. Perversely, for some, it is *rational* not to work.
Jay Carney attempted to spin this news positively–that people shouldn’t have to work!
Over the longer run, CBO finds that because of this law, individuals will be empowered to make choices about their own lives and livelihoods, like retiring on time rather than working into their elderly years or choosing to spend more time with their families. At the beginning of this year, we noted that as part of this new day in health care, Americans would no longer be trapped in a job just to provide coverage for their families, and would have the opportunity to pursue their dreams.
Think about this for a moment. The government is actually saying that it is good for people not to work, and they should be content to rely on government benefits. Or, as Avik puts it is a ” good thing for fewer Americans to be economically self-sufficient.” And who, Mr. Carney, will be paying for these lives of leisure?
This is insidious. Not only will jobs be eliminated because the cost of providing health care becomes cost-prohibitive, but many at the bottom end of the economic ladder may decide to give up, and not work, so they can receive *free* health care, calculating that they will be better off. The deleterious impacts of Obamacare’s expansion on the employment market, and relatedly, the American work ethic, is only now coming into focus.
And as more people join the rolls, this problem becomes more acute. This philosophy will invariably skew the electoral base, as many will soon depend on those in Washington who can maintain (in the short term at least) this leisurely lifestyle? Doesn’t this ethos just prove Mitt Romney’s 47% comment? In a later post, I will address how this demographic shift impacts the long-term viability of the libertarian movement, and future commitment to limited government.