Friday, May 15, 2015

How Obamacare Will Push Wages Lower and Decrease Productivity

By Casey Mulligan

As a Supreme Court decision looms next month in King v. Burwell, which could determine the future of Obamacare, much of the economic discussion surrounding the Affordable Care Act (ACA) focuses, understandably, on the law’s effects on insurance premiums and on the delivery of health care. But the ACA also has significant potential to affect the allocation of labor—and thus wages—throughout the U.S. economy, through its penalties for employers that don’t provide health insurance for their workers as well as through its subsidies for individuals to purchase health insurance (the latter of which is the subject of the King case). The employer penalties and the individual subsidies will exert a downward effect on average wages and on wage patterns, across industry sectors and income levels. And because the law privileges certain kinds of businesses over others, it will also reduce productivity.

One way to understand this is through Adam Smith’s theory of equalizing differences, through which we can trace and quantify the effects of the employer penalty and the exchange subsidies on wages and productivity. Doing so, I found that, overall, the ACA will reduce wages by $1,000 per year—or about 4 percent of wages for workers from low-income families and nearly 2 percent of wages for workers from higher-income families. Quite distinct from the ACA’s impact on insurance availability and on the quality of health care, these effects should be better understood.

Read the rest here.

1 comment:

  1. One keeps thinking that the socialists will see what demotivating the productive classes does. But witnessing Detroit, Chicago, Greece and Venezuela it is clear they'll take everyone and everything down with them before they admit they are wrong.