The ACA’s Effect on the Labor Force is Currently Foggy

The Congressional Budget Office reported today that the Affordable Care Act will shrink the American workforce by 2.5 million by 2024, not as a result of employers shedding jobs but because more people will choose not to work or “work fewer hours than they might have otherwise to obtain employer-provided insurance.”

So here’s the spin from both sides: Democrats are saying, “This isn’t bad news! No one should have to work in a job that they don’t want to do just so they can receive health care from their employer. This gives people freedom.” Republicans are saying, “This is bad for the economy, and will encourage workers to make irrational decisions about the benefits of having a job over the long-term.”

At Marginal Revolution, economist Tyler Cowen says he can’t make sense of either argument at the moment:

People, it is rather difficult to have it here both ways. I guess it is possible that workers are irrational in changing their employment decisions in response to changes in relative dollar wage opportunities, but rational when changing their employment decisions in response to changes in relative benefit opportunities. It really is possible. But are any of you actually arguing that or holding some deep-seated reason for believing in that difference, other than perhaps the reason this post might have induced you to come up with? No, I see one assumption about a destructive choice in one context and the opposing assumption about a beneficial choice in the other context, without much regard for the tension or contradiction between those two assumptions. A lot of you may be subbing in general feelings — “unemployment is terrible,” and “ACA is good,” and simply transferring those general feelings to feelings about the respective marginal changes in employment in each case. That is a fallacy and dare I say it is a “mood affiliation” fallacy?

Cowen is waiting for more information and will be examining this as it unfolds, and rather than weighing in now, I will do the same.

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