Why Obamacare Will Mean Fewer Hours Worked and (Mostly) Lower Incomes

The medium-term effects of Obamacare will likely be fewer hours worked and lower incomes for most income brackets. Expect to hear a lot about this — but not a lot about the significant caveats that apply.

The medium-term effects of Obamacare will likely be fewer hours worked and lower incomes for most income brackets, according to reports from the Brookings Institution and the Congressional Budget Office. If you live in a Senate battleground state, expect to hear a lot about this — but not a lot about the significant caveats that apply.

Obamacare will reduce the labor force and hours worked.

The Congressional Budget Office's annual economic projection was released on Tuesday, updating the non-partisan agency's expectations for the deficit and debt over the next decade. (Both are projected to continue during that time period, you will be unsurprised to learn.)

Oh: Obamacare will likely reduce the deficit by $206 billion between 2015 and 2024. That detail crops up in the more politically explosive part of the report, Appendices B and C, which outline how the Affordable Care Act will affect insurance coverage and the labor force. (Politically explosive appendices! Are you not entertained?) Among the CBO's findings: the botched healthcare roll-out meant one million fewer enrollments than the Obamacare exchanges would have otherwise seen.

But its the workforce data that's most significant over the long-term. (The CBO figures those lost enrollments will be regained over time.) Measuring out from 2016, the point at which Obamacare will be fully implemented:

CBO estimates that the ACA will reduce the total number of hours worked, on net, by about 1.5 percent to 2.0 percent during the period from 2017 to 2024, almost entirely because workers will choose to supply less labor—given the new taxes and other incentives they will face and the financial benefits some will receive.

There are three parts to that:

• Hours worked will drop 1.5 to 2.0 percent — "a decline in the number of full-time-equivalent workers of about 2.0 million in 2017, rising to about 2.5 million in 2024."
• It's because "workers will choose to supply less labor," or, in other words, people will leave or not take jobs. As the report states later, "The estimated reduction stems almost entirely from a net decline in the amount of labor that workers choose to supply, rather than from a net drop in businesses’ demand for labor."
• Workers will leave jobs because of new taxes, incentives, and financial benefits.

That last point is key. Some people will see that they can have more net income if they get the higher insurance subsidies that would come from a lower salary level. (Which, the CBO says, "reflects some of the inherent trade-offs involved in designing such legislation.") Other workers might decide against staying at an existing job because external health insurance offers them more mobility. But it will not be the case that people are working less because businesses slow hiring — at least, not because of Obamacare.

Obamacare will slightly reduce incomes for most income brackets.

A report out at the end of January from the Brookings Institution offers this graph showing how incomes will change after the Affordable Care Act is implemented.

In every income range except the bottom two, the net effect will be a reduction in average income. Byron York, writing for the conservative Washington Examiner, seized on this data, saying that "Obamacare's redistribution will be stunningly lopsided" against the middle class.

In 2012, the lowest two deciles (the bottom quintile) was those who made $20,599 or less. The next two deciles had an upper limit of $39,764, according to the Census Bureau. Obamacare subsidies are linked to income, so those lower tiers will see more subsidies. It's like tax brackets: at a certain point you get bumped into a higher bracket, providing a disincentive at lower levels of the new income bracket.

Brookings, less conservative than York, says that 1) insurance isn't usually included income assessments, which tweaks the analysis, and that 2) the income declines in other groups are "modest". That modesty is in the eye of the beholder; for someone making $21,000, a 0.9 percent dip to $20,811 will mean more than someone who goes from $250,000 to $249,250. But these are averages, linked to shifts in hours worked, as above. The CBO figures that the "largest declines in labor supply will probably occur among lower-wage workers," the group figuring out what makes the most sense economically. More will change jobs or salary levels, changing the averages.

None of this has anything to do with politics, though. Long-time opponents of Obamacare (like Texas Sen. Ted Cruz) and Republicans challenging incumbent Democrats this November will almost certainly not dive into the nuanced explanations of why and how work-hours and incomes are expected to drop under Obamacare. Feel free to share this link with them.

Update, 3:45 p.m.: Business Insider's Josh Barro makes a good point. Once people begin to leave the job market, the demand for employees won't also drop off. So wages may increase in that range York worries about simply to keep people on the job.