Unhappy Labor Day: Obamacare Edition

How the president's signature law is making life harder for working Americans

When the Bureau of Labor Statistics releases the unemployment number for the month of August this Friday, even an improvement in last month's 7.4 percent seasonally adjusted rate will leave the number higher than it was during any month of the George W. Bush presidency.

And it's not just the unemployment number that is grim. That number, after all, gets better when job-seekers get so discouraged that they stop looking for work. The labor force participation rate, which measures the percentage of Americans older than age 16 who are in the work force, is the lowest it has been since the late 1970s.

Why are things so bad?

Sure, there was a financial crisis. But that was five years ago already.

It's possible to put a good face on the declining labor force participation rate by considering it a positive development that Baby Boomers are enjoying their leisure time in retirement, or that parents are staying home with their children, or that young people are staying in school.

At least some of the people working part-time, though, say they would like to be working full time; in July an estimated 8.2 million Americans were working part-time for economic reasons, the highest number in a year.

Part of the problem is Obamacare. Sure, all the mandates haven't kicked in yet. But businesses consider the cost of future mandates in making hiring decisions.

The clearest explanation of the effect of Obamacare on employment that I have seen recently comes in a paper by a professor of economics at the University of Chicago, Casey B. Mulligan, recently released by the National Bureau of Economic Research. He writes that the Affordable Care Act, along with other expansions in safety net programs, has created "a massive 17 percent reduction in the reward to working." As a result, he says, "it is unlikely that labor market activity will return even near to its pre-recession levels as long as the ACA's work disincentives remain in place."

Much of the discussion about the effect of Obamacare on the job market has focused on the behavior of employers. One of Professor Mulligan's contributions is to consider the incentive effect on employees, or would-be employees.

He offers the example of a person comparing a 29-hour-a-week job without employer-sponsored health insurance with a 40-hour-a-week job that includes employer-sponsored health insurance. Given the subsidies that the federal government provides for health insurance under Obamacare, the person ends up with more money, and the same amount of health insurance, by taking the part-time job.

"Moving from-full-time employment to part-time employment can trigger generous assistance with health insurance and out-of-pocket expenses that can offset much of the income lost to reduced work hours," he writes. "Under the ACA, it will not be extraordinary for people to be able to have more disposable income from a part-time position than from a full-time one." 

As Professor Mulligan's paper puts it, Obamacare's provisions combined "raise marginal tax rates in 2015 by 10 percentage points of total compensation, on average, for about half of the nonelderly adult population and zero percentage points for the rest." Professor Mulligan describes the results as "startling," which may be understating it.

Now, one might object that these calculations are so complex that no American who is not a TurboTax programmer or a certified public accountant, or both, will be able to figure them out clearly enough to make a decision on whether to work full-time or part-time based on them. Perhaps. But families making decisions about, say, whether a spouse goes to work full time or stays home with the children have a way of being surprisingly sophisticated about such matters.

One might also object that for many Americans, full-time work is less a cold economic-cost benefit calculation and more a matter of a fulfilling mission or calling that yields psychic rewards not easily measured in dollars or cents. That may be true for some people, but it's not necessarily true for everyone.  If the economic rewards for paid work aren't there, people may choose to seek their psychic rewards through volunteering or by working at home baking bread, growing vegetables in the backyard, or reading to their children in ways that don't show up on the Bureau of Labor Statistics payroll survey.

Anyway, you don't need to be a economics professor at the University of Chicago or an official at the Bureau of Labor Statistics to figure out that if individuals can end up with more money, or about the same amount, by working 11 fewer hours a week, plenty of them will choose that route, with the bill paid by borrowing from China and future generations and by taxing mostly people working full paid work weeks (or retired after doing so for decades). It's a sobering message for Labor Day, and one to keep on mind on Friday when the unemployment number is announced.