Early last week, a media firestorm unexpectedly broke out about a government report that, according to Republicans, proved that the Affordable Care Act (also known as the ACA—or, to Republicans, the dreaded “Obamacare”) would “kill” millions of jobs. By the end of the week, however, that right-wing talking point had been exposed for its gross dishonesty.
The story had, in fact, been exposed so completely that, before the week ended, the Republicans’ contorted attacks had already become a laugh line on the late-night comedy shows. By Monday, the Congressional Budget Office (CBO) issued its own response to some “frequently asked questions,” essentially responding to the political controversy by calmly repeating what it had already stated quite clearly in the original report. It took less than a week for the controversy to go from white-hot attack line for conservatives to another embarrassing overreach by the Obama haters.
How that story played out provides an interesting lesson in modern attack politics. Even more interesting is the reaction by conservatives to the quick and well-deserved death of this latest failed attack on the ACA. Before getting to that, however, we need first to understand just what that government report did, and did not, say.
Fun With Statistics: What an Aggregate Estimate of Hours Worked Cannot Tell Us
As a matter of course, the CBO issues periodic reports called “The Budget and Economic Outlook,” analyzing the effects of fiscal policies on the economy, based on forecasts over the ensuing ten-year window. Last Tuesday, the CBO released its 2014-2024 Outlook.
As part of its new forecast, the CBO decided to update its educated guesses (from its original 2010 forecasts) of the effects that the ACA would have on labor-supply decisions. In the report’s now-famous Appendix C, CBO’s economists attempted to show how people might change their decisions about how many hours to work, when to change jobs, when to retire, and so on, in response to the differing policies that are part and parcel of the ACA.
When I refer to these forecasts as “educated guesses,” by the way, I am not disparaging the work of the CBO. The CBO itself goes out of its way to emphasize that its estimates carry varying degrees of uncertainty, and often need to be updated. For example, the report notes that the “CBO seeks to provide estimates that lie in the middle of the distribution of possible outcomes, but the actual effects could differ notably from those estimates.”
The estimates in question are, in fact, highly contestable (as the CBO acknowledges), because they are an attempt to predict the decisions that millions of people will make in response to policies that will create incentives in cross-cutting directions. Nevertheless, the CBO’s job is to make a best-guess estimate, and its updated forecasts showed a larger labor supply response than its earlier forecast had shown.
What is a “labor supply response,” readers may ask. In this case, the CBO was trying to predict whether people would change any of the decisions that they make daily regarding their jobs. It is a prediction about supply, because we are trying to predict what workers (the suppliers of their work effort) would do, assuming that the demand for their labor by employers remained unchanged.
The headlines and controversy were based on this statement in the report: “The reduction in CBO’s projections of hours worked represents a decline in the number of full-time-equivalent workers of about 2.0 million in 2017, rising to about 2.5 million in 2024.”
This statement was quickly turned into a Republican talking point: Obamacare will kill 2.5 million jobs!! The problem is that the report itself made clear that this was the full-time equivalent of the total number of hours that people would reduce their labor supply, not that there would be 2.5 million fewer jobs than otherwise would exist.
In fact, because this is a forecast of labor supply, even if it had been a matter of 2.5 million people choosing not to hold full-time jobs, it would still not have been a matter of “killing jobs.” There are plenty of people who do not supply their labor at any given moment, whether it is because they are retired, rearing young children or caring for elderly parents, attending college or returning to school to improve their long-term job prospects, and so on.
As the CBO emphasized, the reduction in work hours would occur “almost entirely because workers will choose to supply less labor.” Therefore, the idea that any jobs would be killed is simply nonsense. The report neither says nor implies that employers (the demanders of labor) would be choosing to reduce their workforces because of the ACA. Fewer hours would be worked, but it would be almost entirely because people would voluntarily decide to work less.
Moreover, the estimate of 2.5 million jobs is based on the aggregate reduction in hours worked, divided by the number of hours per year that constitute full-time labor. That, however, is highly misleading, because the reduction in hours worked will surely not be concentrated among only 2.5 million people. If, for example, such a reduction in hours worked were distributed across all 145 million people counted as employed in January of this year, it would amount to having each employee work about 45 minutes less per week.
In fact, the CBO noted clearly that “[t]he decline in full-time-equivalent employment stemming from the ACA will consist of some people not being employed at all and other people working fewer hours; however, CBO has not tried to quantify those two components of the overall effect.” Why not? Essentially, the CBO’s estimation techniques cannot handle such a request. Even reaching the aggregate estimates is a stretch, such that trying to subdivide the numbers is simply more than the data can bear.
The Effects of Health Care Reform on Choices About Where and How Much to Work
Even so, it is interesting to ask why the CBO thinks that some people are going to reduce their working hours, in response to the ACA. The explanations turn out to be entirely unremarkable, and they amount to an advertisement in favor of Obama’s signature policy achievement, not a reason to attack it.
The basic idea, as has by now been discussed on numerous blogs and newspaper articles, is that that ACA will reduce “job lock.” Currently, many workers find themselves stuck in jobs, forced to choose between losing access to affordable health insurance or staying in jobs that they would prefer to leave, or working full time when they would rather reduce their hours to part time.
The people who would actually leave the labor force entirely, after the ACA is fully implemented, are likely to fall into two categories: middle-class families in which one spouse would like to stay home to take care of the household, but who cannot do so without losing health insurance coverage, or people near retirement age who have not yet become old enough to qualify for Medicare. In both of those cases, the ACA provides a guarantee that people will still receive adequate and affordable health care coverage, even if they change their labor supply decisions.
To most people, as the CBO again emphasizes, this new freedom counts as good news. They are currently in jobs that they cannot afford to leave, but the ACA will allow them to either move to different jobs that they prefer, or stop working entirely, because they can otherwise afford to enjoy an earlier retirement (or, perhaps, simply end the pain of a job-related health problem).
To the extent that conservatives can find anything in the CBO report to condemn at all—being otherwise committed to “freedom of choice,” at least in economic matters—it is that the ACA will alter choices so that poor people will supposedly reduce their work hours in order to avoid losing ACA-related benefits. As one especially angry right-wing economist put it: “[W]hen you pay people for being low income you are going to have more low-income people.”
Take note of that framing: By providing affordable health care even to people who otherwise could not afford it, we are paying people to be poor, and that is going to make people flock to the low-income gravy train!
Beyond the incendiary rhetoric, however, the argument is apparently the familiar idea that phasing out benefits creates “implicit taxes.” For example, if every dollar of additional income that a person earns resulted in a reduction in her health-care subsidies of fifty cents, then that would amount to a 50% implicit tax on the additional income.
There has, in fact, been a great deal of work done by economists to study these phase-out effects. The fairest reading of that huge body of research is that middle- and low-income workers generally do not change their labor supply decisions in response to all but the most extreme tax rates.
For many, this is because (completely independent of their health benefits) their jobs do not provide flexible work hours. For others, it is because they are simply too poor to turn down work, even if the net pay from working is reduced by the partial loss of benefits. Especially for younger workers who are trying to work their way up the job ladder, moreover, the issue is not the tax rates or the next salary increase, but whether there will be even bigger salary increases in the future. The goal is to reach the point where the health care phase-outs no longer matter at all.
Even more pointedly, note the logic behind the argument that the ACA is horrible because it indirectly creates an “incentive to stay (or become) poor.” There are, in fact, plenty of other tax provisions that can be described in just the same way, yet we never hear complaints from conservatives that such provisions are undermining the economy.
Take, for one simple example, the tax provision that allows businesses to “carry over” losses from one year to another, to reduce their overall taxes. That is, if a company loses $1 million in one year, it will of course pay no income taxes. If it then earns $1 million in profits during the following year, it will (under current law) be allowed to subtract the previous year’s loss, to zero out the following year’s income, allowing it to pay zero tax in both years.
There is, of course, an appealing logic to such a system, and I am not at all suggesting that we repeal this provision of the tax code. We should note, however, that this provision “rewards” businesses for losing money. That is, it cushions the blow of losing money, such that other taxpayers end up subsidizing the company’s losses. Is it true, then, that “when you pay business for losing money you are going to have more businesses that lose money”? Surely, if we ended this provision, businesses would have more of an incentive to avoid losses. Why do we not end this gravy train?!
Again, however, we must remember that the CBO never said—because it cannot say—how much of its forecast reduction in labor hours supplied will be driven by such effects. The CBO’s new estimates apparently take into account all kinds of possible effects, and the studies that claim large labor supply effects for lower-income workers are highly contestable outliers.
Even more importantly, there is no reason to believe that the proper baseline against which to compare the ACA’s effects is the continuation of the absurdly dysfunctional health care system that the ACA was designed to replace. There is nothing “right” about the additional hours that would have been supplied without the ACA, such that the new law is somehow to be blamed for “making people work less” than (apparently) they should.
The Political Temper Tantrum From the Right
As I noted at the beginning of this column, right-wingers’ attempted hijacking of the CBO report had been exposed and rejected within a few short days of the initial hysteria. It did not take months of hearings, as has the Republicans’ obsession with the tragedy in Benghazi, to determine that there was no substance to conservatives’ excited claims. The report itself was complete, and there was no need to do anything more than to read it, and then to ask, “What is it about freedom of choice that bothers you so much?”
Not surprisingly, however, some on the right are unchastened. For many, of course, they will simply repeat, repeat, repeat, never acknowledging that their initial claims were simply false. Others have already rolled out judgmental condemnations of how the ACA supposedly undermines the “dignity of work,” which somehow means that people should be forced to work longer hours than they would like to work, in jobs for which they are no longer well-matched, simply to avoid the catastrophes that can befall the uninsured.
Surely the most interesting response, however, was provided by the economist who offered the lame idea, which I discussed above, that the ACA (and, of course, all of the other government programs that mitigate the harshness of the economy) encourages people to be poor. A very sympathetic column on the virulently right-wing op-ed page of The Wall Street Journal gave this economist the opportunity to vent about the failure of this argument to have its intended political impact. His comments are instructive.
He starts with a simple insult: “I don’t know what [liberal critics’] intentions are, but it looks like they’re trying to leverage the lack of economic education in their audience by making these sorts of points.” I am sure that made him feel better, since he can now blame it all on liberals’ taking advantage of people’s ignorance.
Then, we find this: “But are we saying we were working too much before? Is that the new argument? I mean make up your mind. We’ve been complaining for six years now that there’s not enough work being done. . . . Now all of a sudden we wake up and say we’re glad that people are working less? We’re pursuing our dreams?”
This might have some tiny bit of traction, if we were talking about the current economic situation. The CBO’s forecasts, however, are based on the assumption that the economy will have recovered from the aftermath of the Great Recession by 2017, and that it will be on its long-term growth path in 2024, when the supposed “2.5 million jobs are lost.” At that point, however, there will be enough jobs for everyone who wants to work.
If that actually happens (as we all hope it will), then we will, in fact, finally be in a position where people can once again pursue their dreams. Those dreams might, for some people, involve choosing to do less work. And if they are making those choices, free from the fear of being financially destroyed by a tragic and unexpected medical disaster, that would truly be an improvement over the pre-ACA world to which conservatives are so eager to return us.
This is rich. We have a pseudo economist who is actually a political hit man telling us that discouraging people from working is good economics. It may be good politics (though it has clearly backfired) and it may be good social policy but it is junk economics.