Friday, February 7, 2014

CBO, Obamacare and the Demand for Labor

From the CBO's "Budget and Economic Outlook 2014 to 2024."

Page 124, "Effects of the ACA on the Demand for Labor"
The ACA also will affect employers’ demand for workers, mostly over the next few years, both by increasing labor costs through the employer penalty (which will reduce labor demand) and by boosting overall demand for goods and services (which will increase labor demand).
The Employer Penalty:
Beginning in 2015, employers of 50 or more full-time- equivalent workers that do not offer health insurance (or that offer health insurance that does not meet certain criteria) will generally pay a penalty. That penalty will initially reduce employers’ demand for labor and thereby tend to lower employment. 
Over time, however, CBO predicts wages will fall and the supply of labor will fall instead of the demand. (The White House, NY Times and MSNBC will undoubtedly find this liberating).

A second and more durable constraint is that businesses generally cannot reduce workers’ wages below the statutory minimum wage. As a result, some employers will respond to the penalty by hiring fewer people at or just above the minimum wage—an effect that would be similar to the impact of raising the minimum wage for those companies’ employees. 
I guess the CBO didn't get the memo that minimum wage does not have a negative impact on labor demand.

Businesses also may respond to the employer penalty by seeking to reduce or limit their full-time staffing and to hire more part-time employees.

The CBO discusses part-time work and the impact of Obamacare and concludes:
In CBO’s judgment, there is no compelling evidence that part-time employment has increased as a result of the ACA.
It would be useful to read the last sentence of that paragraph:
In any event, because the employer penalty will not take effect until 2015, the current lack of direct evidence may not be very informative about the ultimate effects of the ACA.
I think the CBO's analysis of the demand for labor is just as devastating as it's analysis on the supply of labor. It would be useful if the White House, NY Times, MSNBC and knee-jerk supporters of this, "ugly piece of garbage" that has been implemented with "incomprehensible incompetence," read the damn report before commenting on it.


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