A Nation of Part-Time Workers, Thanks to Obamacare



The Affordable Care Act not only makes hiring full-time workers more expensive for employers than part-timers, according to a new research paper, it also directly penalizes full-time workers. That will drive at least some people to—perversely—reduce their hours in order to increase their compensation. The end result for the country is likely to be the equivalent of 4 million fewer full-time-workers.

In "The Affordable Care Act and the New Economics of Part-Time Work," Casey B. Mulligan, professor of economics at the University of Chicago, writes, "Three major provisions of the ACA introduce incentives to change the workweek. The most obvious is the explicit penalty on assessable large employers that do not offer health insurance to their full-time employees." Employers are not required to offer benefits to part-time employees, creating an obvious incentive to reduce working hours and rely on part-time and contract employees instead of full-time workers.

In fact, Federal Reserve Banks around the country find exactly that pattern underway when they survey employers. After polling manufacturers and business leaders in August, the New York Federal Reserve Bank found:

About 20 percent of respondents in both surveys said that they were reducing the number of workers and/or raising the share of part-time workers. A similar proportion said they were paying less compensation per worker because of the ACA, and a similar proportion of manufacturers said they were outsourcing more work.

The Federal Reserve Bank of Dallas received remarkably similar answers to a survey of service-sector employers. Because of costs imposed by the Afordable Care Act, 20.8 percent of them said the number of people they employ will be lower (2.7 percent say it will be higher). And 22.4 percent say they'll use a higher proportion of cost-reducing part-time, contract, or temporary workers (7.1 percent will use fewer).

Federal Reserve Banks in Philadelphia and Atlanta reported similar responses.

But Mulligan adds that, in addition to disincentives for employers to use full-time workers, the ACA also nudges workers to reduce their hours with the "provision that full-time employees and their families cannot receive subsidized health coverage on the ACA's health insurance exchanges…unless their employer fails to offer affordable coverage." Some employees also have an incentive to work less because of "the provision that gives lower subsidies to families with higher incomes." Under the law, a good many workers stand to make more money, once subsidies are included, by working below the part-time threshold than by working full-time.

These pressures on workers to put in fewer hours may actually be stronger than those more widely discussed incentives for employers to cut hours.

How big a disincentive? Mulligan compares a 40-hour-per-week full-timer at $52,000 annually to a 29-hour-per-week part-timer at $37,700. After taxes, expenses, and subsidies, the part-timer walks away with $28,854, compared to $27,021 for the full-timer.

The bottom line, says Mulligan, is that:

  • The ACA's employment taxes create strong incentives to work less. The health subsidies' structure will put millions in a position in which working part time (29 hours or fewer, as defined by the ACA) will yield more disposable income than working their normal full-time schedule.
  • The reduction in weekly employment due to these ACA disincentives is estimated to be about 3 percent, or about 4 million fewer full-time-equivalent workers. This is the aggregate result of the law's employment disincentives, and is nearly double the impact most recently estimated by the Congressional Budget Office.
  • Nearly half of American workers will be affected by at least one of the ACA's employment taxes—and this does not account for the indirect effect on others as the labor market adjusts.
  • The ACA will push more women than men into part-time work. Because a greater percentage of women work just above 30 hours per week, it is women who will be more likely to drop to part-time work as defined by the ACA.

Hmmm…Many Americans can make more by working less and taking tax-funded subsidies. And we'll have the equivalent of 4 million fewer people working, as a result (and paying the taxes for those subsidies).

You have to wonder what that will do to the economy.