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How Will the Affordable Care Act Affect Jobs?

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Document date: March 21, 2011
Released online: March 21, 2011
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In this report, the authors examine how the Affordable Care Act (ACA) will impact labor costs and the demand for labor. They conclude that the ACA will not have noticeable effect on net levels of employment for three reasons – (1) the net new expenditures are too small relative to the overall size of the economy; (2) the negative effects on jobs of Medicare premium cuts and new taxes will be offset by the expansion of coverage through Medicaid and income related subsidies that will likely increase employment; and (3) the new law will not affect the most firms either because they already provide private insurance that meets federal standards or they are exempt from the new requirements because they employ fewer than 50 workers.

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Opponents of health reform have made strong claims about the effect of the Affordable Care Act (ACA) on jobs. Supporters of legislation to repeal the ACA, the so-called “Repealing the Job Destroying Health Care Law Act,” argue that the law will increase unemployment in an already fragile economy. The argument is that the requirement to provide health insurance or improve benefits will increase the costs of labor to employers. In cases where wages or other benefits can be reduced as an offset, firms can absorb the increased cost of providing health insurance and there should be no employment effects. But if wages cannot be cut because of collective bargaining agreements or the fact that wages are already close to minimum wage levels, the demand for labor, and thus employment, would likely fall. Those making the job destroying claims often cite a study released before the details of the reform legislation were known, which found a loss of as many as 1.6 million jobs. This view implies that repealing the ACA will increase employment.

This argument falls short for several reasons. First, the overall economic effects of the law are simply too small relative to the overall size of the economy to have much of an effect on employment. Second, there are many offsetting effects. The tax provisions in the law will reduce the demand for labor in many sectors and the Medicare cuts by themselves would reduce employment in the health sector, but the expansion of coverage through Medicaid and income-related subsidies in the exchanges would have the opposite effect on spending and employment. Third, the new law will not affect most firms, either because they already provide health insurance meeting the new federal standards, or they are exempt from the new requirements (firms with fewer than 50 workers). This paper draws heavily on an earlier paper that looked at the impact of health reform on the economy and employment but updates that effort. The basic conclusion is that the ACA will not have a noticeable effect on net levels of employment.

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Topics/Tags: | Health/Healthcare

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