Hopefully everybody has heard about the CBO report that estimates 2.5 million current workers will either intentionally cut the number of hours they work, or quit work altogether in order to qualify for ObamaCare subsidies.
That estimate is up threefold from the CBO study that was used to justify ObamaCare economics.
Read the full CBO Report
Today I’ll try to stick to the technical aspects of the CBO Report…
First, the literal CBO finding:
The reduction in CBO’s projections of hours worked represents a decline in the number of full-time-equivalent workers of about 2.0 million in 2017, rising to about 2.5 million in 2024.
The decline in fulltime-equivalent employment stemming from the ACA will consist of some people not being employed at all and other people working fewer hours.
The estimated reduction stems almost entirely from a net decline in the amount of labor that workers choose to supply, rather than from a net drop in businesses’ demand for labor, so it will appear almost entirely as a reduction in labor force participation and in hours worked.
English translation: the unemployment rate will decline because there will be fewer workers in the labor force.
That’s one way to fix an unemployment problem.
Why the original CBO miss?
The CBO notes that their earlier projection – supportive of ObamaCare – recognized these labor force dynamics, but underestimated them (by a factor of 3).
Why the new upward revisions?
There are several reasons for the difference in the former and current estimates:
CBO has now incorporated into its analysis additional channels through which the ACA will affect labor supply, reviewed new research about those effects, and revised upward its estimates of the responsiveness of labor supply to changes in tax rates.
English translation: Oops, dropped the ball … nothing changed in the world, just our view of the world.
What new research?
What the CBO is referring to is work done by University of Chicago economist Casey Mulligan. Prof. Mulligan’s work isn’t “new”, though. He was touting it before ObamaCare was enacted.
Putting that technical point aside, the WSJ says that the CBO’s intellectual conversion is directly attributable to Mulligan’s ideas.
Mr. Mulligan’s premise is what economists call “implicit marginal tax rates“.
ObamaCare make work less financially valuable for lower-income Americans.
Because the insurance subsidies are tied to income and phase out as cash wages rise, some people will have the incentive to remain poorer in order to continue capturing higher benefits.
Another way of putting it is that taking away benefits has the same effect as a direct tax, so lower-income workers are discouraged from climbing the income ladder by working harder, logging extra hours, taking a promotion or investing in their future earnings through job training or education.
Specifically, as the CBO put it in their report:
For some people, the availability of exchange subsidies under the ACA will reduce incentives to work both through a substitution effect and through an income effect.
The income effect arises because subsidies increase available resources — similar to giving people greater income — thereby allowing some people to maintain the same standard of living while working less.
The substitution effect arises because subsidies decline with rising income (and increase as income falls), thus making work less attractive.
As a result, some people will choose not to work or will work less — thus substituting other activities for work.
English translation: Workers will be liberated from their personal responsibilities to earn a living and support themselves.
Is this a great county or what?
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