VII. Key Issues: Regulation & Reform >> C. Health Reform >> Affordable Care Act (ACA) >> ACA Impact Analysis >> ACA Impact on Employment/Economy (last updated 3.23.16)
- 1 Overview
- 2 ACA Rules on Full-time Employment
- 3 Theory
- 4 ACA Impact on Hours Worked
- 5 ACA Impact on Total Employment
- 6 ACA Impact on GDP
- ObamaCare Watch, Jobs/Economy has news about economic impact of PPACA.
- Stephanie Rennane, C. Eugene Steuerle. Health Reform: A Four-Tranche System: Updated and Revised. (Urban Institute, February 11, 2011). This analysis documents the large differential in subsidies for employees who obtain subsidized Exchange coverage compared to their equivalently-compensated counterparts who retain employer-provided coverage. This will create pressures for large employers subject to the mandate to find ways for their low-wage employees to obtain Exchange coverage by either making them ineligible for group coverage (e.g., cutting their weekly hours below 30, out-sourcing low-wage services such as maintenance), paying a penalty for inadequate/unaffordable coverage or paying a penalty for not offering coverage. The study does not estimate aggregate effects of these incentives on employment.
ACA Rules on Full-time Employment
For purposes of determining whether an employer is required to offer affordable coverage to a given employee, employers can select a 3 to 12 consecutive month “look-back” period to determine if an employee has full-time status. Once the employer has determined and notified the employee of their full-time status, employees will be considered full-time for a stability period which can be no less than the measurement period. Since most employers provide benefits for a full calendar year, many are likely to use a 12-month look-back and stability period. About 68% of U.S. employers have variable-hour workers, according to benefits consulting firm Mercer LLC, with most of them in the hospitality, retail and education industries. According to a March 2014 report from Mercer, 55% of employers with variable workers say they will use a 12-month look-back, while 31% hadn’t decided on their formula. Consequently, it should be expected that shifts in employment could occur as early as the first half of 2014 since employers whose health plans run from January 1 through December 31 must determine each employee’s full-time status by no later than January 1 (actually earlier since many employers hold their open enrollment period in late fall).
Newsweek’s Robert Samuelson observes: “Firms seek to minimize fixed labor costs by using contractors, “temps” and part-timers. Obamacare intensifies the pressures, because the incentives against hiring full-time workers are so obvious.” The following details the specific employment incentives facing small and large firms.
Small Firm Incentives to Freeze Employment. Because the employer mandate applies only to firms with 50 or more full-time equivalent employees, small firms just under this threshold have an incentive not to add employees lest they trigger the mandate. For purposes of determining firm size, the IRS will treat part-time employees as “full-time equivalents” by adding up the total number of hours per month worked by the part-timers and dividing by 120. (thus, 6 workers @25 hours weekly are equivalent to 5 full-time workers @30 hours weekly).
Firm Incentives to Out-source Employment. A way for small firms to avoid getting too large or for large firms to avoid having to pay a penalty for low-wage workers is to rely on independent contractors. As summarized by one expert: “Independent contractors by definition are not employees. As long as they don’t work regular hours, workers can retain their status as contractors even if they work at the employer’s establishment. The temp business is booming in anticipation of this. Another approach is to turn employees into self-incorporated businesses.”
Large Firm Incentives to Use Part-time Workers. Because the employer mandate penalty applies only to full-time workers–defined as working 30 or more weekly hours–large firms have an incentive to reduce a worker’s weekly hours to below this level to avoid their being counted as full-time. In January, 2014, the IRS will employ a 12-month look back to determine whether an employee is full-time. Any funds to pay a penalty under the employer mandate would have to come from somewhere. These include reduced profits, higher prices, or lower pay for workers.
- Reduce Profits. While possible in theory, one health economist notes: “Many business run at very slim profit margins, so it’s unlikely that they could take the entire hit to their profit and stay in business.”
- Raise Prices. A business’s ability to raise prices is limited by customers’ willingness to pay; in a competitive market, it can be expected that firms already would have raised prices to their profit-maximizing level prior to the imposition of a mandate, thereby limiting their ability to do so further.
- Reduce Worker Pay. For most employers, employees would have to absorb some or all of the penalty in the form of lower wages. For a 30-hour-per-week employee, the $2,000 penalty equals $1.30 per hour; at 40 weekly hours, the penalty is equivalent to 97 cents an hour. The $3,000 penalty would require a wage adjustment that was 50% larger. Consequently, minimum wage laws may preclude such an adjustment for the lowest-paid workers. One-third of uninsured workers earn an hourly wage that is within $3 of the minimum wage: these workers would be most vulnerable to losing employment as a consequence of a mandate.
- Reduced Employment. The mandate will create incentives to replace workers at or near the minimum wage through automation or customer self-service (e.g., self-check-out). Such adjustments will not be instantaneous, but pressures to make them will persist so long as total worker compensation exceeds that worker’s marginal revenue product. Alternatively, employers can avoid the penalty by hiring two part-time workers to do the job formerly done by a full-time worker.
Some have argued that as more employers dump their employees onto the Exchanges, there will be pressures to increase the fine from $1 an hour to a higher amount. But this will simply aggravate the disemployment effects and create strong pressures to channel low-wage jobs into small firms not subject to the mandate.
Apart from supply-side incentives, for workers eligible for Exchange-provided coverage, there will be an increase in demand for part-time worker since for some workers, working 30 hours at a given wage will generate as much after-tax, after-health expense income as working 40 hours at that same wage. This implies a net hourly wage (after taxes and health spending) that is one third higher for the part-time worker.
ACA Impact on Hours Worked
Employment Data: Establishment Surveys
Average Weekly Hours.
- U.S. Data
- In August, Investors Business Daily‘s Jed Graham reported: “Among retail bakeries, home-improvement stores and providers of social assistance to the elderly and disabled, the workweek for nonmanagers has fallen to record-low levels — by far. At general merchandise stores, department stores and discounters, the rate at which the workweek has fallen since early 2012 is way off the charts relative to prior data going back to 1990.“
“The White House pointed to hours worked in the restaurant sector to disprove an ObamaCare impact, but the data don’t support the claim. Because average hours worked are already below 25 hours, part-timers hired for 28 hours would raise the average.”
- State Data
- Retail Trade. In 12 of the 14 states where average weekly hours worked are available, nonsupervisor workers in the retail trade showed average annual declines in hours worked between 2011 and 2013. In fact, six states saw average hours worked fall to 30 hours or less for that sector. One state had no change in hours and one saw an increase. it is unusual to observe employment growth with a simultaneous reduction in hours, especially because that trend was not as prominent between 2008 and 2010 when employment was shrinking.
- Illinois. The three sectors that fall into both the lowest-paid and lowest work hours categories are: retail trade, food and beverage, and general merchandise. Before the ACA was passed, average weekly work hours remained steady for these sectors in Illinois, even in the aftermath of the financial crisis. In fact, average work hours increased slightly in two of these sectors between 2008 and 2010. But all three sectors, which each had an average workweek over 30 hours in 2011, saw average work hours decline at least an hour or more between 2011 and 2013.
Total Employees vs. Full-time-Equivalent (FTE) Employees. The Bureau of Economic Analysis (BEA) assembles two time series derived from the monthly Current Employment Statistics (CES) survey, which is a sample survey of business establishments that is conducted by state employment security agencies in cooperation with BLS. One series reports the total number of full- and part-time employees. The other calculates FTE employees, which equals the number of employees on full-time schedules plus the number of employees on part-time schedules converted to a full-time basis. The number of FTE employees in each industry is the product of the total number of employees and the ratio of average weekly hours per employee for all employees to average weekly hours per employee on full-time schedules.
Since FTE’s represent an average, each actual full-time employee in a given industry only approximates an FTE in that industry. But since FTE’s are defined in terms of the average hours worked by those classified as FT, the overall number of FT employees will mathematically equal the number of FTEs in that same industry (although when FTE’s are aggregated across industries, this 1:1 relationship no longer exactly holds). Nevertheless, as a rough approximation, the ratio of total employees (FT + PT) to FTEs will give an indication of what share of FTEs are accounted for by the hours contributed by PT employees. Unfortunately, these data are only reported annually and there is a large time-lag in reporting these data. The most recent available annual figures are for 2011.
- Short Term Trends. For all employees, private and public, the ratio for 2011 (1.1257) was slightly lower than the equivalent figure for 2010 (1.1267). For private industries, the same was true (1.1077 in 2011 vs. 1.1078 in 2010).
- Long Term Trends. For all employees, the ratios for 2009-2011 were consistently higher than for the preceding decade, but not by much (1.1246 in 2009 vs. 1.1129 in 2007); private employees exhibited the same pattern.
Unlike the figures on FT vs. PT employment, this ratio accounts for hours of work. Thus, if the ACA is causing current BLS-defined PT workers to lose hours (e.g., going from 34 to 29), this ratio should increase even if the BLS ratio of PT to FT workers remains stable. However, if this is occurring in 2013, it will not be reported until CY2013 figures are released in August, 2014.
Evidence from States
- Buchmueller, DiNardo and Valetta (2011) found a 1.4 percentage point increase in the share of employees working less than 20 hours a week as a result of the law (Hawaii requires firms to provide health insurance to employees working 20 or more hours a week).
- Thurston (1997) finds that those industries most affected by the mandate, namely industries in which relatively few full-time workers were covered by health insurance, saw large increases in the fraction of workers employed in part-time jobs. In contrast, industries in which almost all full-time employees were already receiving health insurance saw little shift in the fraction of full- vs. part-time workers. Hawaii’s employment growth exceeded that of the country as a whole, but the percentage of Hawaiian workers employed less than 20 hours per week (and thus exempt from the law) was significantly higher than the national average.
- Dubay, Long and Lawton found no evidence of a disproportionate shift towards part-time work compared to the rest of the U.S. However, in Massachusetts, employers with more than 10 full-time equivalent employees (FTEs) are required to contribute a “fair and reasonable” amount toward health insurance premiums for employees. Firms that fail to make “fair and reasonable” contributions face financial penalties of $295 per FTE per year, which is much smaller than in the ACA ($2,000 per worker excluding the first 30).
- Qu, Dan. Health Insurance, Pensions and Wages (2010). University of South Carolina. Theses and Dissertations. Paper 392. The third chapter uses 2004, 2005, 2007 and 2008 Current Population Survey and merged Outgoing Rotation Group data and examines industry-level EHI coverage, average hourly wage, employment and working hours in Massachusetts and several neighboring states before and after the passage of a Massachusetts law mandating EHI for most workers. Results in this study are partially consistent with the prediction. They suggest that industries with a higher initial EHI coverage experience an increase in EHI coverage, a decrease in employment and a decrease in the percentage of workers that are full-time. However, there is no clear wage effect on such industries. The policy effect also appears to vary with firm size. A higher percent of medium firms in an industry tends to be associated with the mandate lowering EHI coverage and the average hourly wage, but increases in the percentage of workers that are full-time. One overall effect of the policy does appear to be a decrease in employment as a result of the law.
Items are in reverse chronological order.
- The Cato Institute, Michael Cannon (2.4.16). Obamacare Is Destroying Jobs–And Here’s The Evidence. Presents a compilation of media reports of impact by state, concluding that “our search was by no means comprehensive, yet it turned up reports from nearly every state showing that Obamacare is forcing employers to eliminate jobs, reduce hiring, and reduce workers’ hours to below 30 per week.”
- CBO (November 2015). Effective Marginal Tax Rates for Low- and Moderate-Income Workers in 2016. On the basis of its simulation, CBO finds that low- and moderate-income workers—those with income below 450 percent of federal poverty guidelines (commonly known as the federal poverty level, or FPL)—will face, on average, a marginal tax rate of 31 percent in 2016. That estimate takes into account federal and state individual income taxes, federal payroll taxes, and the phaseout of two transfer programs—benefits from the Supplemental Nutrition Assistance Program (SNAP, formerly the Food Stamp program) and the cost-sharing subsidies for health insurance provided under the Affordable Care Act. (The premium assistance tax credits are provided through the individual income tax code and are reflected in both the marginal federal income tax rate and the total marginal tax rate.)
- Health-related benefits (in this example, Medicaid, CHIP, the premium assistance tax credit, and the cost-sharing subsidy) would raise a hypothetical one-parent/1 child family’s after-tax income by as $9,400 in 2016.
- Taking into account the fraction of all individuals in this income category who receive them, the premium assistance tax credit adds 1.2 percentage points to the weighted average marginal tax rate of all individuals in this income group, and the cost-sharing subsidies add 0.7%. Thus, together, they account for 1.9 percentage points of the 31% overall marginal tax rate (Table 1).
- However, for those affected by these provisions, the premium assistance tax credit adds 12. 3 percentage points to the MTR, while cost sharing subsidies add 9.5 percentage points; so together, these 2 alone add 19.8 percentage points to MTR of those qualified for both benefits.
- Mercatus Center (May 2015). The Impact of Health Reform on Employment and Work Schedules (5.28.15). “The Affordable Care Act (ACA) imposes several types of incentives that will affect work schedules. This paper uses tax measurement methods, policy simulation methods, and sensitivity analysis. The tax measurement methods show that historically large new incentives include (1) an explicit penalty on employers who do not offer coverage to their full-time employees; (2) an implicit tax on full-time employment, stemming from the fact that full-time employees at employers that offer affordable coverage are ineligible to receive subsidies on the law’s new health insurance exchanges; and (3) an implicit tax on earnings, stemming from the provisions of the law that give lower subsidies to those with higher incomes. Simulation methods and sensitivity analysis suggest that the labor market will likely adjust to the various new costs by reducing weekly employment per person by about 3% compared to what they would have been without the law. The tax incentives will push some workers to work more hours per week (for the weeks that they are on a payroll), and others to work fewer. According to the model presented in this paper, the ACA’s incentives and ultimately its behavioral effects will vary substantially across groups, with the elderly experiencing hardly any new incentives and female workers being most likely to cut their work schedules to 29 hours per week.”
- Mulligan, Casey B. and Gallen, Trevor S. Wedges, Wages, and Productivity under the Affordable Care Act. Working Paper 19771 (December, 2013) “Our paper documents the large labor market wedges created by taxes, subsidies, and regulations included in the Affordable Care Act. The law changes terms of trade in both goods and factor markets for firms offering health insurance coverage. We use a multi-sector (intra-national) trade model to predict and quantify consequences of the Affordable Care Act for the patterns of output, labor usage, and employee compensation. We find that the law will significantly redistribute from high-wage workers to low-wage workers and to non-workers, reduce total factor productivity about one percent, reduce per-capita labor hours about three percent (especially among low-skill workers), reduce output per capita about two percent, and reduce employment less for sectors that ultimately pay employer penalties.”
- Casselman, Ben. Don’t Blame Health Law for High Part-Time Employment. Wall Street Journal (10.22.13). “Overall, 27 million people — nearly a fifth of all employees — are working part-time, well above historical norms… But a closer look at the data provides little evidence for the notion that the health law is driving a shift to part-time work, although it could as the mandate deadline approaches….First of all, over a longer time frame, part-time work has actually been falling as a share of employment in recent years….The share of part-timers who say they usually work between 30 and 34 hours at their main job has been roughly flat over the past three years, at about 28%. (September data aren’t yet available.) If anything, it’s actually risen in the past year, though the change has been minor. The share working just under 30 hours has indeed risen somewhat, but the share working under 25 hours has fallen—suggesting that employers are giving part-timers more hours, rather than cutting full-timers’ hours back. None of this, of course, means that employers won’t cut workers’ hours in the future. The employer mandate doesn’t take effect until 2015, meaning companies have plenty of time to adjust their hiring practices. But there’s little evidence they’ve done so yet.”
- Pudzer, Andrew. Wall Street Journal, ObamaCare and the Part-Time Economy. (10.10.13). To determine whether an employee was working 30 or more hours per week, ObamaCare provides a “look back period” of three to 12 months. With a maximum one-year “look back,” employers had little incentive to significantly increase part-time employment until Jan. 1, 2013. The health-care law’s actual consequences unequivocally appear in the jobs data for this period. Between Jan. 1 and June 30, according to the Bureau of Labor Statistics, the economy added 833,000 part-time jobs and lost 97,000 full-time jobs, for net creation of 736,000 jobs. In reality, the economy overall added no full-time jobs. Rather, it lost them. Not surprisingly, full-time job creation rebounded and part-time employment subsided following the announcement on July 2 that the employer mandate would be delayed for a year. In July and August, the economy lost 20,000 part-time jobs and added 132,000 full-time jobs. While businesses know the administration has put off, not eliminated, the mandate, the clock was reset and the surge in part-time employment subsided.
- Epstein, Gene. More Part-time Jobs on the Horizon. Wall Street Journal (9.15.13). Based on an interview with University of Chicago economics professor Casey Mulligan, the author concludes: “There are now 28 million people working part time versus 116.2 million full-timers. Once all the incentives of the ACA kick in by 2015, those figures could switch by perhaps as much as 10 million, turning into 38 million part-timers versus 106.2 million full-timers.” Mulligan estimates that a mid-range estimate of the subsidized health benefits package available to part-time workers would be about $15,000 (though the workers themselves may not value those benefits at that level). Thus, “Prof. Mulligan shows that, under certain plausible assumptions, some part-time workers at 29 hours might actually do better financially than their full-time counterparts at 40 hours.”
- Jorgensen, Helene and Baker, Dean. The Affordable Care Act: A Hidden Jobs Killer? Center for Economic and Policy Research (July 2013). This study used the CPS to compare the first four months of 2013 with the first four months of 2012, examining the numbers and percent of workers who reported working 26-29 hours a week. This issue brief finds only a small number (0.6 percent of the workforce) of workers report working just below the 30-hour cutoff in the range of 26-29 hours per week. Furthermore, the number of workers who fall in this category was actually lower in 2013 (852,296) than in 2012 (853,124), the year before the sanctions would have applied. As a percentage of the workforce, the 2013 figure (0.5968%) likewise was slightly lower (0.6037%). “While there may certainly be instances of individual employers carrying through with threats to reduce their employees’ hours to below 30 to avoid the sanctions in the ACA, the numbers are too small to show up in the data.”According to NBC News: “CEPR researchers found that just 1 million workers, roughly 0.6 percent of the labor force, work between 26-29 hours a week. Two-thirds of them said they did so by choice, not because they were forced to.”
- UC Berkeley Labor Center. Data Brief: Which workers are most at risk of reduced work hours under the Affordable Care Act? (February 2013). Among workers in firms with 100 or more employees, an estimated 2.3 million workers nationwide are at greatest risk for work hour reduction (at-risk workers were defined as those working 30-36 hours, below 400% Federal poverty level who do not currently have insurance through their own employer). These at risk workers represent 1.8% of the U.S. workforce. The industries with the highest fraction of workers in 100+ worker firms who are vulnerable to hours reduction include restaurants (16.2%), accomodation (8.3%), nursing homes (7.6%) building services (7.6%) and retail trade (6.5%). All other industries were well below 5%. The study also shows that 9.2% of workers in firms this size already work fewer than 30 hours a week,while another 8.9% worked 30-36 hours. The group most vulnerable to hours reduction represented 3.1% of workers in these firms, implying that if all such workers had their hours reduced, it would increase the number of workers with less than 30 weekly hours by at least one third (not counting any new part-time workers needing to be hired to make up for hours lost among existing workers).
- Sherstyuk, K., Wachsman, Y., & Russo, G.. Labor Market Effects of Employer-Provided Health Insurance. This is an experimental study in economics of mandated beneﬁts. Most individuals who have health insurance in the US obtain it through their employer. Some states either have or are considering government mandates that require employers to provide insurance to all full-time workers. We use an experimental laboratory to investigate possible eﬀects of alternative health insurance regulations on the competitive labor market performance. We ﬁnd that mandating the insurance for all workers creates labor market distortions; whereas mandating the insurance only for full-time workers leads to a higher coverage then under no mandate, an increased number of part-time workers, but does not necessarily lower market eﬃciency.
- John Goodman. Why Obamacare is Costing Full-time Jobs. NCPA, December 4, 2012.
- Book, Robert. Why Obamacare Incentivizes Part-Time Jobs (12.3.2012)
- John Goodman. Employers Get Ready for ObamaCare. NCPA, October 16, 2012.
- Dubay L, Long SK and Lawton E. Will Health Reform Lead to Job Loss? Evidence from Massachusetts Says No. Urban Institute. June 2012.
- Furchtgott-Roth, Diana and Amlan Banerjee. The Effects of the Patient Protection and Affordable Care Act on the Franchise Industry. Hudson Institute, September 2011.
- John Goodman. To Avoid Insuring the Part-Timers, Reduce Their Hours. NCPA, July 7, 2010.
Baicker, K., & Chandra, A. (2006). The Labor Market Effects Of Rising Health Insurance Premiums. Journal of Labor Economics, 24(3), 609-634. Authors find a shift to part-time employment as a result of recent increases in health insurance costs.
ACA Impact on GDP
- Kaplan, Robert S. and David M. Walker. Government Debt and Competitiveness. “Just four years ago, the U.S. ranked 1st out of 144 nations in the World Economic Forum’s Global Competitive Index. Now it has dropped to 7th with further declines likely unless we change our policies and priorities.”
- Miller, Tom (2016). Entrepreneurship & Economic Dynamism: Marginal Returns from Health Policy Thus Far. Ewing Marion Kauffman Foundation. This study analyzes both the initial promises and early performance of the Affordable Care Act of 2010 (ACA) in aiming to improve the business climate for new startups, other smaller businesses, and their employees. The early record for small business tax credits and health exchanges is disappointing. Providing insurance subsidies more directly to lower-income workers has had a greater impact in increasing their access to health insurance. Overly optimistic projections of significant increases in entrepreneurial activity throughout the U.S. economy under the ACA remain unfulfilled thus far.
- Blumberg J, Corlette S, and Lucia K. (May 2013). The Affordable Care Act: Improving Incentives for Entrepreneurship and Self-Employment. This report from Georgetown University and the Urban Institute estimated a 1.5 million increase in the number of self-employed Americans in 2014 due to the ACA’s consumer and financial protections.
- Self-employed Give Thumbs Up to Obamacare. “Administration officials and those who study small businesses say not enough time has passed to assemble data on the number of businesses started or saved because of Obamacare, but experts say the law has been a help, not a hindrance. ‘Exchanges don’t ask if you’re self-employed,’ said David Chase, health care policy director at Sausalito, Calif.-based advocacy group Small Business Majority. ‘But with over a million people in the exchange,… it’s reasonable to assume they’re a large part of that number.’” (USAToday, 10.3.14)