Will ObamaCare Discourage Employers From Hiring?

Politicians love branding legislation as either job killing or job creating, but the empirical data underlying these claims is usually pretty murky. Just look at the 2009 stimulus package. The bill was pitched explicitly as a way to foster job creation. As part of the law, the federal government set up an unusual tracking and reporting system that, for all its flaws, remains far more robust than the sort of employment-effects analysis that accompanies most legislation. Academics and independent analysts across the political spectrum conducted their own analysis of the law's job creation. And yet it remains practically impossible to pin down its overall effects on the hiring and employment within any reasonable range. 

The reports produced by the Congressional Budget Office do not actually track real-world job creation, but they do reflect much of the diversity of the economic models created by those studying the stimulus; CBO's models estimate that the stimulus created anywhere from 500,000 to 3.3 million jobs. A range of that size tells us more about the uncertainty of the estimates—and in turn about the larger uncertainty about the effectiveness of fiscal stimulus—than it does about the law's likely job creation.

Yet it would obviously be a mistake to say that just because it is difficult to quantify the job creation or destruction involved in a law, there is no effect at all. Specific claims about the precise employment effects of the 2010 health care overhaul, for example, are somewhat dicey at best . But as Manhattan Institute Senior Fellow and Former Labor Department Economist Diana Furchtgott-Roth argues, there's good reason to believe that it will discourage many employers from hiring:

The mandated $2,000 tax per worker in the new health care law, effective 2014 and levied on employers who do not provide the right kind of health insurance, is discouraging hiring. The Patient Protection and Affordable Care Act of 2010 will raise the cost of employment when fully implemented in 2014. Companies with 50 or more workers will be required to offer a generous health insurance package, with no lifetime caps and no copayments for routine visits, or pay an annual penalty of $2,000 for each full-time worker. Moving from 49 to 50 workers will cost a firm $40,000 a year.

…The $2,000 per worker penalty raises significantly the cost of employing full-time workers, especially low-skill workers, because the penalty is a higher proportion of their compensation than for high-skill workers, and employers cannot take the penalty out of employee compensation packages.

Suppose that a firm with 49 employees does not provide health benefits. Hiring one more worker will trigger a penalty of $2,000 per worker multiplied by the entire workforce, after subtracting the statutory exemption for the first 30 workers. In this case the tax would be $40,000, or $2,000 times 20 (50 minus 30). Indeed, a firm in this situation might have a strong incentive not to hire a 50th worker, or to pay him off the books, thereby violating the law.

In addition, if an employer offers insurance, but an employee qualifies for subsidies under the new health care exchanges because the insurance premium exceeds 9.5 percent of his income, his employer pays a penalty of $3,000 per worker. This combination of penalties gives a business a powerful incentive to downsize, replace full-time employees with part-timers, and contract out work to other firms or individuals.

Is it possible to determine with any certainty how many jobs won't be created as a result of ObamaCare? Probably not. The Congressional Budget Office has estimated that the law will reduce employment by roughly 800,000 jobs over the next decade, primarily as a result of individuals choosing not to work in order to maintain health insurance. I wouldn't bet too much on the precise numbers. But it seems reasonable to believe that many employers will respond to the law's disincentives to hiring full-time workers.