When the CBO released its annual Budget and Economic Outlook last Tuesday, the major news story was CBO’s projection that Obamacare will cause a reduction in hours worked of between 1.5% and 2%, equivalent to the loss of around two million jobs annually. This was rightly seen as a serious blow to Obamacare, which Democrats tried to deflect by pointing out that according to the CBO, nearly all of the decline in hours will be the result of employees deciding not to work, rather than employers reducing the number of jobs. Jay Carney spun this as a good thing:
Over the longer run, CBO finds that because of this law, individuals will be empowered to make choices about their own lives and livelihoods, like retiring on time rather than working into their elderly years or choosing to spend more time with their families.
This article, by a professor of leisure studies, has been the subject of hilarity on the right: Why Do Republicans Want Us to Work All the Time?
Congressman Keith Ellison says the loss of the equivalent of two million jobs represents better “work-life balance.”
Predictably, Paul Krugman rushed to the ramparts to promote the same theme:
[A]s Greg Sargent and Jonathan Cohn try to explain, we’re talking about a voluntary, supply-side response here — people choosing to work less — not about job destruction. …
Does the reverse notch plus job lock mean that the CBO’s estimate of work reduction (NOT job loss) actually represents a gain in welfare? It might or might not — the traditional tradeoffs surely apply to many workers too. But you don’t want to assume that it’s obviously a bad thing.
The Democrats’ theory is that if subsidizing health insurance causes some people to quit their jobs to “spend more time with their families,” lie on the couch and write poetry, or whatever, that’s a good thing. Most people reject this argument on its own terms. But it is also important to understand that the work loss projected by the CBO is based in part on the fact that employers will reduce wages as a result of Obamacare. Lower wages are one factor that will cause some employees to quit the labor force–a phenomenon that no one would try to spin in a positive direction.
I made this point within a few hours after the CBO report came out, but unfortunately most people are not aware of it. The CBO explained that Obamacare will impose penalties on employers that would cause employers to cut back on jobs–no “voluntary” unemployment there–but for the fact that employers will be able to pass those costs on to employees in the form of wage cuts. The resulting lower wages are one of the reasons why employees will work 1.5% to 2% fewer hours. The CBO wrote:
Under the ACA, employers with 50 or more full-time-equivalent employees will face a penalty if they do not offer insurance (or if the insurance they offer does not meet certain criteria) and if at least one of their full-time workers receives a subsidy through an exchange. Originally scheduled to take effect in 2014, that penalty is now scheduled to be enforced beginning in 2015. In CBO’s judgment, the costs of the penalty eventually will be borne primarily by workers in the form of reductions in wages or other compensation—just as the costs of a payroll tax levied on employers will generally be passed along to employees. Because the supply of labor is responsive to changes in compensation, the employer penalty will ultimately induce some workers to supply less labor.
Presumably Jay Carney wouldn’t claim it is a good thing when a person drifts out of the labor force because his wages are too low to justify continued employment. (The CBO says that the wage-cut impact will be felt mostly at lower income levels.) And when Paul Krugman wrote that the CBO’s employment loss, equivalent in hours to two million jobs, is “voluntary…people choosing to work less,” and therefore not “obviously a bad thing,” he didn’t disclose to his readers that the loss in employment will be due in part to wage cuts suffered by low-income workers. (To be fair to Krugman, it is possible that he didn’t mean to deceive, but just didn’t bother to read the CBO report. He is not exactly the Stakhanov of pundits.)
But the point is an important one. Whenever a Democrat tries to claim that the job losses caused by Obamacare are a good thing because they promote “work-life balance” or allow would-be poets to work on their iambic pentameters at someone else’s expense, conservatives should be ready to respond that the CBO’s projected losses are due in part to wage cuts rather than health care subsidies.