Obamacare — Bad for Employers, Bad for Employees

Small businesses are mobilizing against Obamacare as November’s midterm elections approach.

Late last month, the National Federation of Independent Business, one of the most influential small business organizations in the country, withdrew its past support of Senator Mary Landrieu (D-La.), who is running for reelection, because of her backing of the Affordable Care Act. The NFIB promises that it will be “out in force” campaigning for her Republican opponent, Bill Cassidy.

Small businesses — not to mention their workers — have good reason to be miffed. Evidence is mounting that Obamacare raises health costs for small firms and thereby reduces workers’ wages. Writ large across the entire economy, the law is not just discouraging firms from creating new jobs — it’s actually reducing the size of the labor force.

Two new economic studies unpack Obamacare’s impact on the labor market.

The first, from the American Action Forum, shows that the law is reducing the pay of workers at small businesses — those with 20 to 99 employees — by at least $22.6 billion every year.

“On average, employees who work a full year for a business with 50-99 employees lose $935 annually due to ACA regulations, while employees of businesses with 20-49 employees, on average lose $827.50 annually,” the study noted.

Obamacare isn’t just reducing workers’ pay — it’s putting them out of work. The AAF study concludes that the law’s regulations and increased premiums are likely responsible for American employers having shed more than 350,000 jobs. California, Florida, New York, Ohio, and Texas have each lost more than 20,000 jobs, thanks to Obamacare.

Killing jobs and reducing pay is bad enough. But another report, from the American Health Policy Institute, finds that Obamacare will also shrink the labor force by reducing incentives to work.

In other words, workers are going to get squeezed from both sides. There will be less demand for them even as Obamacare makes it less financially appealing to have a job.

The AHPI report concludes that Obamacare imposes on businesses “additional costs of $4,800 to $5,900 per employee over the course of a decade.” In the next ten years, the total cost of the law to American employers will be between $157 billion to $186 billion.

Additional costs spell slow — or even no — job growth.

The AHPI study also points to a survey of 691 small employers conducted by the International Foundation of Employee Benefits Plans showing that “one in ten has reduced hiring in order to stay under the 50-employee ACA threshold for small employers.”

Federal Reserve data reveal a similar trend — that employers are hiring more part-time workers to avoid Obamacare’s penalties and save money.

At the same time, the law is driving people to avoid seeking work altogether.

Obamacare grants many Americans subsidies to help pay for health coverage. These subsidies are pegged to their income levels — the less they make, the more they get from the government.

That creates a substantial disincentive for people to work more — or at all. Picking up more hours or shifts can lead to the loss of hundreds or even thousands of dollars’ worth of health insurance subsidies.

“The size of the subsidy allotted to recipients can decline by as much as 50 cents for each dollar of additional earnings,” notes the AHPI report. “In order to preserve or gain higher subsidies, work may seem less attractive to some individuals, thus leading them to substitute other activities for work.”

Then there’s Obamacare’s massive tax burden. “The ACA will increase marginal taxes by an average of five percentage points of employee compensation . . . the ACA will impose the third largest increase in marginal tax rates in the past 60 years, lowering the return from working by approximately 10 percent,” according to the AHPI report.

Harvard Professor Greg Mankiw estimates that a marginal tax hike like that will reduce the labor supply by 5 percent.

The labor force participation rate is already at its lowest point since 1978. Just 62.8 percent of able-bodied adults are working or looking for a job.

Fewer workers mean fewer taxpayers — even as more people become dependent on the government handouts that those taxes pay for.

The harm Obamacare does to employers and employees is already abundantly clear, and it’s only going to get worse. If we want healthy and sustainable labor markets, there’s no way around it — we have to repeal and replace Obamacare.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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