September 12, 2014

Obamacare’s War on Work and Wages

The Labor Department confirmed last Friday that more than five years after the recession ended, the labor force participation rate continues to collapse. It sits at 62.8 percent, near its 36-year low and down 0.5 percentage point from this time last year. This news follows a gloomy assessment by the Congressional Budget Office late last month that projected the rate will continue to plummet – to 61.5 percent in 2021.

CBO was much more optimistic in 2011. Back then it expected that the labor force participation rate would average 64.2 percent this year. This 1.4 percentage point difference translates into an extra three million Americans who’ve left the labor force. That’s over and above normal demographic changes like retiring baby boomers. The difference is attributable to a weaker economic recovery than CBO’s experts predicted just three years ago. Relative to its 2011 forecast, CBO now projects that there will be four million fewer Americans in the labor force in 2021.

Declining Labor Force

Declining Labor Force

In addition to fewer Americans working, many of those still working have part-time jobs, and wages have stagnated. According to the latest Labor Department figures, 7.3 million Americans want full-time employment but are stuck in part-time jobs. Last week, CBO reported that the magnitude of part-time employment resulting from workers’ inability to find full-time employment remains much higher than it was before the recession.

An abundance of recent evidence shows that the president’s health care law bears much of the blame for the economic stagnation of the last several years. Today, CNBC reported that “rising health-care costs have created a big overhang on small to mid-sized employers, who are peering into the economic horizon and see few reasons for optimism.” One economist, writing in the Wall Street Journal on September 8, estimated that Obamacare will cause a three percent drop in employment and work hours, and a two percent drop in GDP and worker income. That’s double the amount estimated by CBO in February, suggesting that the total loss in worker compensation caused by the president’s health care law will exceed $2 trillion between 2017 and 2024. It is just one more way the law is not working for Americans.

Workers are Hurting

The health care law contains more than 20 tax increases that will directly cost Americans more than $1 trillion over the next decade. One of the most destructive is the employer mandate, which taxes businesses with more than 50 full-time workers up to $3,000 per full-time worker if they fail to offer employees an expensive health insurance package.

One health economist calculated in 2013 that Obamacare’s “essential benefit package” translates into a minimum health benefit of $2.28 an hour for individual coverage and $5.89 an hour for family coverage. The effect will be to lower the wages of many workers as they are forced to take an increasing share of their compensation as health insurance benefits. Since Obamacare raises costs for businesses, it also will cause some companies to downsize and shift workers to part-time status.

In the past month, Federal Reserve banks have released surveys showing Obamacare’s negative effect on employment. According to businesses surveyed by the New York Fed, as a result of the president’s health care law:

  • 22 percent of manufacturers and 16 percent of service firms reduced, or plan to reduce, the size of their work force.
  • 19 percent of manufacturers and 20 percent of service firms increased, or plan to increase, their proportion of part-time workers.
  • Many businesses have outsourced, or plan to outsource, more work and have reduced, or plan to reduce, wages and other benefits for their employees.

According to businesses surveyed by the Philadelphia Fed, as a result of the president’s health care law:

  • 18 percent of businesses reduced, or plan to reduce, the size of their work force. 
  • 18 percent of businesses increased, or plan to increase, their proportion of part-time workers.
  • Nearly half of businesses modified their health insurance plans, with 88 percent of these businesses passing the higher costs to their workers.

Fewer Jobs and Lower Wages

A recent analysis from the American Action Forum confirms that Obamacare is directly responsible for destroying jobs and lowering wages for workers at small businesses throughout the country. The researchers found that Obamacare’s regulations and premium increases have reduced employment by more than 350,000 jobs nationwide at businesses with between 20 and 49 workers.

The study also assessed Obamacare’s impact on worker pay, finding that businesses have already started adjusting for Obamacare’s higher costs, even though the administration has delayed the employer mandate. It found that Obamacare is already responsible for reducing pay by at least $22.6 billion annually at business with between 20 and 99 workers. On a per worker basis, employees at businesses with 50 to 99 workers have already lost an average of $935 annually. Employees at businesses with 20 to 49 workers have already lost an average of $828 annually as a result of Obamacare.

Without reform, the job losses and wage reductions caused by Obamacare will likely continue as the employer mandate takes effect over the next two years.

Issue Tag: Health Care