More Unintended Consequences of Obamacare

by Veronique de Rugy

Our labor market is stuck in the mud. The employment ratio — the share of the population that has a job — has remained essentially flat since the depths of the recession, despite a visible reduction in the unemployment rate. One explantion is that people have given up looking for jobs. Many labor economists don’t think the unemployment rate is a very good measure of the health of the labor market because it doesn’t count workers who’ve left the labor force out of discouragement. But another reason is that it doesn’t make a distinction between those working full-time and those who would like to work full-time but can only find part-time work. This under-employment dynamic, which economic literature tells us can have serious long-term effects, is becoming a salient aspect of the labor market: The most recent jobs report found the number of part-time workers increasing in June to a record high of more than 28 million, while the number of full-time workers fell.

Unfortunately, this is only the beginning. For instance, there is some evidence that Obamacare is leading some employers  to lower the number of hours employees work to avoid having to provide health insurance under the ACA. Case in point: Virginia community colleges. 

For Kevin Pace, the president’s health-care law could have meant better health insurance. Instead, it produced a pay cut.

Like many of his colleagues, the adjunct music professor at Northern Virginia Community College had managed to assemble a hefty course load despite his official status as a part-time employee. But his employer, the state, slashed his hours this spring to avoid a Jan. 1 requirement that all full-time workers for large employers be offered health insurance. The law defines “full time” as 30 hours a week or more. . . .

This month, the Obama administration delayed the employer insurance requirement until January 2015. But Virginia, like some other employers around the country that capped part-timers’ hours in anticipation of the initial deadline, has no plans to abandon its new 29-hour-a-week limit.

The impact on Pace and thousands of other workers in Virginia is an unintended consequence of the health law, which, as the most sweeping new social program in decades, is beginning to reshape aspects of American life. [...]

While a number of private businesses cut worker hours this year because of the health-care law, they have been loath to do it because of fears of public blowback, said Jared Pope, a Texas consultant whose clients include local governments and businesses. Governments have been more open because they must make their decisions publicly, he said.

He estimated that seven of his 62 clients had capped hours and that 18 were considering it. Those that curbed part-time hours are not likely to reverse course, only to have to reinstate the limit next year, he said.

“They kind of somewhat [ticked] people off already,” he said. “They don’t want to undo it and become a good guy now, only to do it all over again to be the bad guy.”

At a Capitol Hill hearing on the employer mandate Tuesday, Jamie T. Richardson, vice president of White Castle System, the Columbus, Ohio-based burger chain, said complying with the 30-hour rule would mean a 35 percent increase in the company’s health-care costs. He said White Castle would probably adopt a policy ensuring that new hires work no more than 25 hours a week if the mandate goes forward as expected in 2015.

Part of the issue for employers lies in the definition of “full time,” which diverges from the industry standard of 40 hours a week. Advocates say the 30-hour bar was supposed to discourage employers from shaving a few minutes off a full-time worker’s hours to skirt the law. But it turns out that “an awful lot of people work less than 40 hours a week,” said Timothy Jost, a health-policy expert and consumer advocate.

The whole thing is here.

Second, my colleague Jason Fichtner sends me this new NBER paper by economists Garthwaite, Gross, and Notowidigdo, which suggests the ACA may cause even larger reductions in labor supply of lower-income Americans. While I am not sure how reliable their data or methodology is, it is interesting and their conclusions don’t seem far-fetched considering what we’ve been observing in the past. Here is the abstract:

We study the effect of public health insurance eligibility on labor supply by exploiting the largest public health insurance disenrollment in the history of the United States. In 2005, approximately 170,000 Tennessee residents abruptly lost public health insurance coverage. Using both across- and within-state variation in exposure to the disenrollment, we estimate large increases in labor supply, primarily along the extensive margin. The increased employment is concentrated among individuals working at least 20 hours per week and receiving private, employer-provided health insurance. We explore the dynamic effects of the disenrollment and find an immediate increase in job search behavior and a steady rise in both employment and health insurance coverage following the disenrollment. Our results suggest a significant degree of “employment lock” – workers employed primarily in order to secure private health insurance coverage. The results also suggest that the Affordable Care Act – which similarly affects adults not traditionally eligible for public health insurance – may cause large reductions in the labor supply of low-income adults.

I am going to file these two pieces under the file ”unintended consequences of Obamacare” — which I’ve also written about here and here. Of course, when I say unintended consequences, I mean that the advocates and designers of the law didn’t expect them. Many people had warned that these specific consequences would come about.