Study: Obamacare Could Shrink Workforce by 900,000

Published August 21, 2013

According to a new study, if you’re single, earning less than $22,000 annually, and are getting health insurance through your employer, President Obama’s law may make you reconsider showing up for work in 2014.

If low-income workers are able to buy reduced-price health insurance through the new federal exchanges, there may be less of an incentive for those workers to keep or find a job, according to three researchers at the National Bureau of Economic Research, a national think tank.

 “Our results appear to indicate that the soon-to-be-enacted health-care reform may cause substantial declines in aggregate employment,” conclude researchers Craig Garthwaite, Tal Gross, and Matthew Notowidigdo.

In the paper, the three academics examine the so-called “employment lock” phenomenon. That’s what happens when employees continue working at their current job primarily so they can earn and keep health benefits. That “lock” will be loosened by Obama’s law.

Incentive to Cut Back Work

There are between 850,000 and 1.5 million childless adults in the United States who earn less than 200 percent of the federal poverty line—about $22,000 per year—and have employer-provided health insurance.  Under Obama’s law—which takes effect in 2014—those workers will be able to buy insurance on federal or state-based health insurance exchanges. Because of their low-income status, they will qualify for taxpayer-funded subsidies to cover part or all of the cost of their health insurance premiums.

The new study suggests at least some of those workers are only maintaining their jobs to keep their employer-sponsored health plans. Given the option to buy cheaper insurance through the exchanges, many may cut back on their hours or drop their jobs entirely.

“Applying our labor supply estimates directly to this population, we predict a decline in employment of between 530,000 and 940,000 in response to this group of individuals being made newly eligible for free or heavily subsidized health insurance,” the authors wrote. “This would represent a decline in the aggregate employment rate of between 0.3 and 0.6 percentage points from this single component of the ACA.”

The authors of the study also suggest “far larger increases in Medicaid enrollment than are currently expected,” due to a ripple effect of some workers leaving their jobs. Depending on what state an individual lives in, a reduction in annual income from $22,000 to $11,000 could make them eligible for Medicaid.

Dropping Out of the Labor Force

 John Davidson, a health care policy analyst at the Texas Public Policy Foundation, said there is no doubt some people will drop out of the labor force once health insurance coverage is decoupled from employment. But it may not be all bad news, he added.

“Freedom from ’employment lock’ could also have the effect of encouraging people to take economic risks, such as starting a small business or some other entrepreneurial venture,” Davidson said.  “If they can get health insurance elsewhere, they are likely to engage in economic activity in some other way rather than drop out of the workforce entirely.”

Shrinking Workforce, More Entitlements

Employers, however, say this could be another bad blow.

Jeff Zriny, president and CEO of the Wausau Region Chamber of Commerce, says employers would be forced to drive up wages even higher, a scenario that could ultimately be costly for Wisconsin’s economic recovery.

“There would be an hourly wage creep that would spread through the organization, which probably could not be absorbed by the company,” Zriny said.  “That’s what happens when you interfere with the free market.”

Paul Gessing, president of the Rio Grande Foundation, a free market think tank based in Albuquerque, N.M., says he’s not particularly surprised by the study.

“For decades, the political left in this country has been fighting to expand Americans’ dependency on government,” he said. “it is no surprise that the massive expansion of government’s role in the health care sector—an expansion that has been coveted by the left since the Truman administration—would result in fewer workers and increased dependency on government.”

Eric Boehm ([email protected]) is a national reporter for, from which this article is reprinted with permission.


Internet Resources:

“Public Health Insurance, Labor Supply, and Employment Lock,” by Craig Garthwaite, Tal Gross, Matthew J. Notowidigdo