Is the Affordable Care Act (ACA), also known as Obamacare, a job killer? Along with the fate of HealthCare.gov, this question stalks the ACA.
Critics — including me — say yes. We argue that businesses will try to avoid the requirement to provide health insurance to workers by changing their employment practices. This would include cutting hours to ensure that workers are “part time” under the ACA, exempting them from coverage. The Obama administration says the facts don’t justify the fears. In a study, the White House Council of Economic Advisers found “no economy-wide evidence . . . [of] increasing part-time employment” tied to Obamacare.
Who’s right? Maybe we both are.
The case against Obamacare is straightforward. For many employers, the cost of providing health insurance to mainly low-income workers would be huge. Logically, many firms would try to evade the expense. There are two ways of doing this. First, businesses with fewer than 50 full-time workers are exempt from the insurance requirement (the “employer mandate”). So, don’t hire that 50th worker. The second way is to make workers part time by cutting their weekly hours to less than 30. That’s Obamacare’s threshold for full-time workers.
Consider an example. A firm has 49 full-time workers. None receives employer-paid health insurance. Each has an annual wage of $30,000. The company adds another worker. Its wage bill totals $1.5 million (50 workers times $30,000). But it must now offer health coverage; in 2011, the average cost of a policy for a single person was about $5,000. For 50 workers, that’s an additional $250,000 (50 workers times $5,000). If the firm had a pretax profit of $250,000, its profits would be wiped out. There’s a powerful incentive to avoid Obamacare, either by not hiring or by pushing full-time workers under the 30-hour cap.
Companies with a lot of part-timers, often working more than 30 hours a week, will face intense cost pressures. Restaurants, retail stores and hotels/motels top the list. In 2012, these three industries had almost 9 million part-time workers, the Bureau of Labor Statistics (BLS) estimated. The BLS cutoff for part-time work is 35 hours a week.
“Our industry has low operating margins of 3 percent to 5 percent,” says Scott DeFife, executive vice president of the National Restaurant Association, referring to profits as a percent of sales. “Any drastic increase in costs — for fuel, food, labor — can have a [big] impact.” Katherine Lugar, head of the American Hotel & Lodging Association, worries that the ACA will “force employers to adjust hours downward.” Unsurprisingly, these groups and the National Retail Federation, representing stores, favor raising the ACA’s full-time cutoff to 40 hours a week. For the Obama administration, this would increase the number of uninsured and the ACA’s costs. Companies would have an incentive to hold workers’ hours to just below 40.
And what for? The study by White House economists suggests that job fears are exaggerated. Here’s what it found:
● Since the president signed the ACA in 2010 — and also in the past year — about nine out of 10 new jobs have been full time. Since the recession’s low point, the share of workers working part time has slowly declined.
● Among part-time workers, there’s “no systematic evidence that employers are shifting employees to just below 30 hours per week.”
● Employment growth in restaurants has been strong, despite a low level of insurance coverage and presumed vulnerability to the ACA mandate.
Can these opposing views be reconciled? I think they can.
In previous business cycles, part-time work jumped sharply during the recession as companies reduced production, but then fell rapidly during the recovery. The rapid decline hasn’t happened this time. Cautiousness by employers may be one reason; fears of the ACA mandate may be another. Meanwhile, the administration delayed the employer mandate from 2014 to 2015. This relieves the immediate pressure on businesses to cut hours. It delays Obamacare’s adverse job effects.
So I don’t dispute the White House study’s accuracy, but I do doubt the sweeping conclusions being drawn from it. A study from the San Francisco Federal Reserve fortifies my convictions. It’s usually cited in the ACA’s favor, concluding that the law won’t erode full-time work much. The increase in part-time jobs “is likely to be small, on the order of a 1 to 2 percentage [points] or less.” But that few percentage points amounts to between 1.4 million and 2.8 million more part-time jobs. Not trivial.
The ACA’s hiring disincentives are one factor among many (greater risk aversion, sluggish consumer spending, deadlock in Washington) deterring job creation. The effect is probably less than the ACA’s most rabid opponents assert but more than the law’s uncritical apologists assume. It may grow with time.
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