Between 6 and 11 million Americans could increase their disposable incomes by working less under the Affordable Care Act, according to a new working paper by University of Chicago economist Casey Mulligan.
Mulligan has done extensive work on how government benefits, especially in the Affordable Care Act, affect work incentives, and his research appears to have played a big role in the CBO’s finding earlier this year that, in the coming years, the ACA will cause up up to 2.5 million full-time American workers or their equivalents to leave the workforce.
His research has tended to predict an even larger effect, ranging up to something like 4 million full-time-equivalent workers due to higher marginal tax rates on labor. Much of his specific work, however, has focused on hourly tax rates and “income cliffs,” under which income earned for working more will be erased by the reduction or elimination of subsidies for the purchase of health insurance. That’s where the CBO seemed to think the main issues lie.
But the new paper looks at two specific examples of how the ACA imposes a huge tax on full-time work itself, which will leave millions, Mulligan believes, finding their incomes lower if they work full-time than if they work part-time. It’s a good indication of just how widespread the labor-market effects of the ACA is, if Mulligan’s right.
The two issues:
‐ At firms that don’t offer workers health insurance, there is a big incentive for employers to have their employees work just a bit less (29 hours a week) to avoid having to provide insurance or pay a penalty under the employer mandate
‐ At firms that do offer insurance to full-time employees, some full-time employees will be better off working part-time because they can get heavily subsidized insurance on the exchanges if they work too little to be eligible for their employer’s insurance offer.
The paper calculates that about 4 million workers will find themselves in the latter position — their after-tax income will be higher if they work 29 hours or fewer, make themselves ineligible for their employers’ health insurance offer, and get government-subsidized health insurance on the exchanges. These people who see their incentive to work full-time disappear entirely are disproportionately likely to be women (Reihan commented on this issue when the original CBO report came out) and to be earning less than 250 percent of the federal poverty line. Mulligan calculates that 20 million people in total will face a big full-time employment tax (“FTET”), though most of them will still come out ahead by working full-time — just not nearly as much as they would have before the ACA.
Another 4 million people, he predicts, will see all the extra income of working more than 30 hours a week erased by the fact that their employer will have to pay a penalty for not providing health insurance — importantly, as the CBO noted, here is where the employee’s income losses aren’t really voluntary, and full-time jobs are destroyed and replaced with part-time jobs.
There are a number of ways employees could voluntarily work somewhat less. Mulligan hypothesizes that some of them will work less of the year, rather than fewer hours per week:
In effect, millions of workers are becoming eligible for fully federally funded paid days off work, akin to the sick leave policies in Western European countries. Because the Western European data suggest that paid sick days really do result in fewer days at work (Lusinyan 2007), we should expect the ACA’s FTETs to reduced days worked as well, at least for the segments of the workforce that do not avoid the ACA’s taxes in other ways.
It should be noted that while the incentive effects of government benefits and the way health-benefits can keep people in the labor force via “job lock” is well documented, Mulligan’s estimates of all of these effects tend to be higher than many other economists (and not just cheerleaders for the ACA) expect.
The evidence we have so far is unclear: The employer mandate, which makes up one of the two big issues Mulligan is estimating here, is now going to be implemented gradually over the next couple years, but the incipient effects of it in 2013, when it was scheduled to be implemented in Januar 2014, didn’t appear to be huge.