Obamacare Was Never Going to Create Jobs

Economists who said American health reforms would expand employment were deluding us.

President Barack Obama is shown information on a tablet computer in the Oval Office of the White House in Washington DC, April 15, 2013
President Barack Obama is shown information on a tablet computer in the Oval Office of the White House in Washington DC, April 15, 2013 (White House/Pete Souza)

The Wall Street Journal had a great interview with University of Chicago economist Casey Mulligan this weekend whose research proved instrumental in getting the Congressional Budget Office to revise its estimates of the employment effects of the Democrats’ health reforms.

In 2010, the CBO predicted the equivalent of 800,000 jobs would be lost as a consequence of enacting “Obamacare”. In its most recent fiscal outlook, the budget office puts the number at two million by 2017 and 2.5 million jobs by 2024.

Mulligan believes the number will turn out to be even higher. The reason is fairly straightforward: Obamacare gives subsidies to low-income Americans to buy health insurance. If they work more hours or get a promotion and their wages rise, those subsidies are gradually phased out. As The Wall Street Journal puts it, “some people will have the incentive to remain poorer in order to continue capturing higher benefits.”

This is not exactly rocket science yet many economists denied the law would incentivize Americans to work less than might otherwise have. In January 2011, dozens of economists wrote to Congress (PDF), warning that repeal of the reforms could cost between 250,000 and 400,000 jobs — per year!

Ironically, the same letter warned that “employers respond to rising health insurance costs by reducing wages, hiring fewer workers, or some combination of the two” — which is exactly what has happened under Obamacare. Firms with just over fifty employees have cut back on their staff’s working hours in order not to qualify for the employer mandate that would otherwise compel them to buy medical insurance for all their workers. Health insurance costs continue to rise as the law also requires insurers to expand their “basic” care plans.

Supporters of the health reforms now argue that the decrease in working hours they are causing is actually a good thing. Again, The Wall Street Journal summarizes the argument:

Since employers aren’t cutting jobs per se through layoffs or hourly take backs, people are merely choosing rationally to supply less labor. Thanks to Obamacare, we’re told, Americans can finally quit the salt mines and blacking factories and retire early, or spend more time with the children, or become artists.

Mulligan finds this all rather preposterous. “Why didn’t they say, no, we didn’t mean the labor market’s going to get bigger. We mean it’s going to get smaller in a good way,” he wonders.

The reason is obvious. Many economists — like normal people — are quite willing to find arguments and facts to support the beliefs they already hold instead of the other way around. Something to keep in mind next time an economist comes up with pretty numbers to justify a policy he supports anyway.