The Economy

Peter Crabb: Obamacare gives some workers incentive to work less

Professor of finance and economics at Northwest Nazarene University in NampaJune 18, 2014 

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Peter Crabb


"Please boss, cut my hours." This is not a request employers usually hear, but thanks to incentives under the Patient Protection and Affordable Care Act (aka Obamacare), business owners and managers can expect it more often.

A fundamental principle in economics is that people respond to incentives. But it's difficult to know all the incentives that change with a change in economic policy.

In 1946, New York Times journalist Henry Hazlitt argued that identifying all the effects on economic activity of a given policy was an "art." In his book "Economics in One Lesson," Hazlitt wrote, "The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy."

The rules and regulations in Obamacare have had an "immediate" effect - the number of people with health insurance is on the rise, just as intended. But we are now beginning to see "the longer effects."

When the new health care law was first debated, many economists said employers would cut back workers' hours or simply hire more part-time employees. We didn't hear much about employees seeking to cut their own hours.

But new research from University of Chicago economist Casey Mulligan shows that millions of U.S. workers now have an incentive to limit their workweek to 29 hours. Working more each week renders them ineligible for financial assistance under Obamacare.

Mulligan estimates that about 4 million workers face a high marginal tax rate on labor income when they work full time. Indeed, the tax rate on the additional income from working more than 29 hours per week may be more than 100 percent. Why should people want to work more if all their earnings are lost?

Perhaps the most interesting part of the new disincentive to work is that it occurs for workers employed at firms that offer health insurance benefits. That is, the incentive is changing for workers that already have employer-sponsored health insurance.

Many U.S. workers are ineligible for health insurance subsidies because their employers offer coverage to full-time employees. Since most employer-sponsored health plans require the employee to pay at least some portion of health insurance premiums, some workers are better off with a 29-hour work schedule, which makes them eligible for subsidies without creating penalties for employers.

Mulligan further notes that the new law disproportionately affects working, unmarried heads-of-household. This group is primarily women and already makes up a disproportionate number of those living below the poverty line.

This research goes a long way in explaining the changing nature of our workforce. According to the Department of Labor, civilian employment in the U.S. is about the same as it was in December 2007. But part-time employees have risen 10 percent. The most recent Idaho data indicates that part-time positions make up 23 percent of all jobs in the state compared with 18 percent in 2007.

The "longer effects" that Henry Hazlitt said were so important are now coming to light. Expect more workers to seek fewer hours as Obamacare takes full effect.

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