Policy Seminar on “Obamacare and Labor Markets”

Wednesday, February 19, 2014
George Shultz Conference Room, Herbert Hoover Memorial Building

PARTICIPANTS

Casey Mulligan, Michael Boskin, Gary Becker, John Cogan, Sebastian Di Tella, John Gunn, Rick Hanushek, Dan Kessler, Pete Klenow, Pablo Kurlat, Stephen Langlois, Ed Lazear, Nicholas Petrosky-Nadeau, John Raisian, John Shoven, George Shultz, John Taylor, Emily Warren, Ian Wright

ISSUES DISCUSSED

Casey Mulligan, professor at the University of Chicago, discussed his work on the Affordable Care Act (i.e. ACA/“Obamacare”) and labor markets. To begin, Mulligan pointed out that due to the nature of the ACA, specifically the subsidies as a function of income, there are incentives for lower income workers to work less hours and earn less income in order to qualify for the government healthcare subsidies. While economists are not discussing the ACA as a law creating numerous employment taxes, fundamentally that is what it is doing. Indeed, in some scenarios households that work less can end up with more income than they would have had if they worked more. Mulligan then discussed the different models he has used to measure the effects of different provisions of the ACA on labor markets. Presenting the results from these models, he explained that not only does the ACA decrease the incentive to work for lower income people, but it increases the incentive to work for higher income people, but that this is because the latter group now needs to make up for their loss of income due to higher premiums and out of pocket healthcare costs. Indeed, as the reward to work decreases, the quantity of labor will decrease, while the quality will increase because those at the low-end of the skill/income distribution reduce their hours and/or drop out of the labor force. Mulligan also warned against popular studies that may be done in the future to argue that the ACA has a positive effect on the economy. The argument may be made that the ACA increased the quality of labor, whereas in reality this is due to lower skilled workers reducing their work hours to qualify for higher levels of government subsidization. Additionally, the ACA was implemented at the same time as the Emergency Unemployment Compensation (EUC) was ended. The cessation of the latter should, Mulligan argued, cause an increase in growth and the incentive to work which some economists may wrongly attribute to the ACA.

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