Capital Ideas Blog


By Matthew J. Notowidigdo

From: Blog

More than 2 million Americans will quit working, reduce their hours, or stop looking for employment directly as a result of the Affordable Care Act, the Congressional Budget Office predicted this week

It’s important to keep in mind when reading the report that the predictions come primarily from predicted changes in labor supply, not labor demand. In other words, the reduction in employment represents voluntary decisions by individuals to work less (or not work at all) as a result of the ACA. 

It’s hard to comment on the specific predicted numbers (because, as a matter of policy, the CBO does not provide details on their calculations), but the basic idea that some workers will decide to leave the labor force due to the ACA is highly consistent with my own recent research studying a 2005 Medicaid reform in Tennessee. In that paper, we introduce the term “employment lock” to describe individuals who are working solely to gain access to affordable health insurance. 

Since one of the main things the ACA does is weaken the connection between employment and health insurance, it seems quite reasonable to expect that some Americans may quit working now that they no longer need to find a job in order to get access to affordable health insurance. 

Is this a good or a bad thing? I think there are good arguments in both directions. My co-author Craig Garthwaite gives good arguments on both sides in a recent Marketplace piece. My own view is that the CBO predictions are necessarily sensitive to assumptions about how the labor market will be operating in the near future. If some workers drop out of labor force due to the ACA, with unemployment still fairly high (and long-term unemployment at unprecedented levels), it seems reasonable to expect that firms will be able to find qualified (and readily available) workers to take their place. In that case, the effects on aggregate employment would be minimal, and the ACA would then turn out to be more of a “job re-shuffler” than a “job killer.”


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