The Corner

The ACA, the CBO, and the 2 Million Jobs _____

There is absolutely no evidence, and every economist will tell you this, that there is any job-loss related to the Affordable Care Act.  — Secretary Kathleen Sebelius, February 18, 2014

The reduction in CBOs 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.  — Congressional Budget Office, The Budget and Economic Outlook: 2014 to 2024, February 4, 2014

There has been enormous confusion regarding the economics underneath the CBO’s projection that 2.5 million (“full-time equivalent”) jobs will disappear by 2024. Some people fill in the blank in this post’s title as “The ACA, the CBO, and the 2 Million Jobs Killed.” Others argue for “The ACA, the CBO, and the 2 Million Jobs People Choose to Leave Voluntarily.” The average reader likely just shrugs at the whole fuss.

Let’s review what the CBO numbers say. First, let’s focus on 2024 alone. In that year the CBO projects that the economy will have reached the conventional definition of “full employment” (here, an unemployment rate of 5.5 percent). In economists’ lingo this means “labor supply equals labor demand.” The fact that the economy is at full employment when the 2.5 million equivalent jobs are gone means two things:

‐ If there are 2.5 million fewer (equivalent) people working, but the unemployment rate is unchanged, then the number of those participating in the labor force has dropped by 2.5 million (again, technically their equivalents). No way around it. If the labor force was unchanged and there were 2.5 million more out of work, the unemployment rate would rise.

‐ If there are 2.5 million fewer jobs supplied, then there must also be 2.5 million fewer jobs demanded, as supply equals demand.

But why would small firms, entrepreneurs, and big corporations combine to give up on 2.5 million hiring opportunities and the products and services they produce? Mechanically, those employers would have to pay higher wages – high enough to lure the 2.5 million out of their homes to work despite their access to Obamacare-subsidized insurance. Unfortunately, at those higher wage rates, the employers run losses. It doesn’t make economic sense to try to fill the positions, and the jobs are lost.

There are lots of ways to raise wages and eliminate jobs. A higher payroll or other labor tax on employers could do the trick. An onerous workplace regulation that made employees more costly would too. Or a direct, economy-wide increase in the minimum wage to, say, $25 an hour would satisfy the objective.

In each of those cases, many would be comfortable saying that the policy “killed” jobs. In the case of the ACA, the channel of influence is more indirect, but the economic impact is exactly the same: The ACA will reduce the number of jobs in our economy.

Proponents of the ACA have also argued that the workers leaving jobs or working less are “better off,” and this makes the outcome different and more desirable. That’s incomplete. The workers are better off, but the taxpayers who finance the subsidies are, of course, worse off.  If, for example, the jobs were lost because a tax was levied on employment, the displaced workers would be worse off, but those who benefited from whatever government program it funds would be better off.  Policies of this sort inevitably involve tradeoffs in the well-being of one group of citizens versus another.

— Douglas Holtz-Eakin is the president of the American Action Forum. 


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