Do you believe the incentive effects related to the ACA will be more limited since: (i) they are more difficult to value/understand as compared to an unemployment check and (ii) the impact is less direct and comprehensive.
Sunday, May 12, 2013
Thursday, May 9, 2013
- Obamacare is designed to subsidize high quality insurance plans for middle class people -- plans good enough for your U.S. Senator. Romneycare only subsidized Medicaid Managed Plans with benefits of far less value than the typical employer health plan.
- Under Obamacare, middle-class families can get subsidized health insurance for their entire family, including their children. As noted above, those plans are good enough for their Senator. Under Romneycare, the new subsidized plans were for adults only; families wanting subsidized insurance for their children had to apply for Medicaid.
- For the first time under Obamacare (with a brief exception under the American Recovery and Reinvestment Act), most workers outside of Massachusetts will obtain health insurance subsidies only by leaving their job or getting fired -- the economic equivalent of unemployment assistance. Romneycare did not introduce health insurance subsidies for the unemployed in Massachusetts, because the state has had such subsidies in place since the 1980s.
- Under Obamacare, middle-class persons leaving a job with health insurance are immediately eligible for subsidized health insurance. Under Romneycare, there is a six month waiting period, and even then only if the persons do not qualify for Medicaid.
- Both Obamacare and Romneycare have per-employee penalties for employers not offering insurance but, accounting for the business tax treatment of those penalties, the Obamacare penalties are more than ten times larger.
- Romneycare was designed to leverage the special federal tax treatment of employer-provided fringe benefits. Obamacare is designed to reduce the usage of that special federal tax treatment.
- Romneycare subsidies exclude families between 300% and 400% of the federal poverty line. Obamacare subsidies do not. Even if the two reforms had the same income cutoff, a larger fraction of Massachusetts would be above it because Massachusetts is a high income state.
- Employer-provided insurance was a lot more prevalent in Massachusetts before Romneycare than it is in the U.S. generally. ie., even if we ignore the penalty amounts and subsidy values, the fraction of the U.S. labor market directly experiencing the Obamacare penalties and subsidies will far exceed the fraction of the Massachusetts population experiencing Romneycare penalties and subsidies.
To learn more about Romneycare, take a look at the book The Great Experiment.
Wednesday, May 8, 2013
- A reduction in labor supply could reduce the quality of labor, with workers putting in less effort, or doing less to maintain their skills, or become less attached to the labor market. This tends to reduce cash earnings per hour because each hour is less productive. These have been major factors in the analysis of women's wages, where most economist believe that women's hourly earnings increased as a consequence of supplying more (see Becker 1985, Goldin and Katz 2002, Mulligan and Rubinstein 2008, and many others). See also some of the literature on unemployment insurance such as Ljungqvist and Sargent's paper on European unemployment.
- A reduction in labor supply or demand could increase the average quality of labor through a composition bias. See p. 17ff of my book and the references cited therein.
- Because of fringe benefits, cash hourly earnings are not the same as employer cost. As employer health insurance expenditure has been growing over time, the growth of cash hourly earnings has substantially under-estimated the growth of employer cost.
When employer costs are taken into account, it is unclear whether jobs are something that can be efficiently shared.
The idea behind work-sharing is that employers have a certain amount of work that needs to be done, and that the work can be divided by many employees working a few hours each or a few employees working many hours each. If hours per employee could be limited, by this logic employers would have to hire more employees to get the same amount of work done.
American labor law has traditionally placed some limits on employee hours, such as overtime regulations. While the recent Affordable Care Act does not strictly limit hours per employee, beginning next year it gives employers a strong push toward part-time employment by levying a significant fee per full-time employee and exempting part-time employees from the fee.
A number of employers have said they would change some work schedules to part time from full time to avoid some Affordable Care Act fees. Because part-time workers generally have fewer benefits than full-time employees, this could save employers a considerable sum. From the work-sharing perspective, the part-time employee exemption by itself would be expected to increase employment, because employers would have to hire more people (probably on a part-time basis) to complete work their employees used to accomplish when full time.
But it is possible that work-sharing would reduce employment rather than increase it, because it prevents employers from accomplishing their tasks at minimum cost, adding administrative and coordination expenses. Higher costs for employers may put them out of business, or at least reduce the scale of their business. When companies reduce the scale of their activities, that means fewer employees.
It is also possible that work-sharing would reduce employment by making jobs less attractive to people who desire full-time work. One reason that people sometimes justify commuting long distances to work or enrolling in demanding training programs – trucking and nursing are two such occupations — is that they expect to recoup those cost by taking advantages of opportunities to earn extra by working long hours.
Work-sharing proponents have credited Germany’s comparatively low unemployment rate to its adoption of a work-sharing program, because the program encourages German employers to reduce employee hours rather than lay workers off. Work-sharing proponents may be right, although Germany carried out a number of labor-market reforms at the same time, such as allowing businesses to use temporary workers more easily.
As the Affordable Care Act suddenly pushes business toward part-time employment, we economists will have an unusual opportunity to learn whether cutting employee hours creates jobs, or destroys them.
Saturday, May 4, 2013
Wednesday, May 1, 2013
To promote economic efficiency and the goal of universal health coverage, perhaps members of Congress should not be required to enroll in the new insurance exchanges.
The Affordable Care Act of 2010 seeks to invigorate the nongroup health insurance market – that is, health insurance that people can buy without going through an employer – by creating and subsidizing insurance exchanges similar to the one created by Massachusetts in 2007. In addition, the law seeks to make health insurance affordable for middle-class families by having the federal government pay part of premiums and out-of-pocket costs, but only for people buying nongroup health insurance through the new exchanges.
A provision of the law known as the Grassley amendment requires members of Congress and their staffs to obtain their own health insurance through the exchanges. The amendment gives the authors of the law, and the authors of future tweaks of the law, a personal stake in the success of the plans to be provided through the new exchanges.
Because members of Congress are accustomed to high-quality medical care provided to them through federal employee benefit programs, one might expect that they would push for top quality care to be delivered through the exchanges too. That is one reason why an (ultimately unfounded) report that the Grassley amendment might be reversed prompted so much outrage. (What’s actually at issue is uncertainty over whether the employer contributions in the current health plan for those on Capitol Hill can be applied to coverage through the exchanges.)
But the possibility that middle-class families could obtain care that is both top quality – good enough for your senator – and subsidized creates a number of economic problems. It gives employers a stronger incentive to drop their coverage, because employers and their employees can take comfort in the prospect that the alternative to employer insurance is a health plan that is good enough for your senator.
If the exchange plans were good enough, people who are rushing to find a job, and people considering leaving their job, would no longer have to see employment as their only means of obtaining top quality, subsidized coverage. As a result, some of those would work less (see the Congressional Budget Office on some of health reform’s work incentives, and a 1994 explanation from Alan Krueger and Uwe E. Reinhardt).
The more attractive the subsidized plans are, the more people will join them, and the greater the costs to the federal government. If the Affordable Care Act proves to be too expensive, drastic steps may result, such as closing enrollment in the subsidized exchange plans or repeal of the law all together. Either result would mean that the law’s objectives would go unmet.
There is an alternative approach, pursued in Massachusetts, for those not covered through an employer, a spouse’s employer, or Medicaid or Medicare. They may be eligible to join one of several subsidized plans under the state’s Commonwealth Care program (most are operated by the Medicaid managed care organizations), but those are less desirable than the plans typically offered by employers. With that as the alternative for their middle-class employees, employers would be discouraged from dropping coverage. People would have an incentive to work, because that’s where the best plans would be available.
Massachusetts did not have anything like the Grassley amendment.
For these reasons, economists have long recommended that subsidized goods be of somewhat lower quality than goods available without subsidy. Massachusetts followed that advice, and found that (a) their health reform approach significantly reduced the number of uninsured and that (b) less than 10 percent of the people in Massachusetts whose family income fell in the subsidy-eligible range chose to participate in the subsidized plans.
Although politically incorrect and perhaps unfair, allowing members of Congress to keep their federal employee coverage might be the best thing for universal coverage and reducing the impact of the Affordable Care Act on the federal budget.
Wednesday, April 24, 2013
Driverless vehicles would be a windfall for households and businesses that acquire them but would probably increase traffic and nationwide fuel usage.
Google and other innovators are working on vehicles that someday might drive themselves with little or no attention from human passengers. The vehicles of the future will have fast, observant computers that automatically communicate position and road conditions with other vehicles on the road.
Driverless vehicles are expected to help children, the blind, the elderly and others who currently cannot safely drive themselves. Helped by their huge amounts of data and computing power, driverless cars are also purported to reduce traffic congestion and nationwide fuel consumption by driving smarter.
But smarter driving will lead to more driving, because smarter driving reduces the cost per mile of vehicle usage. The end result of additional driving could be more traffic and more aggregate fuel consumption.
These days, a driver has three main costs of the trip to consider: fuel consumption, vehicle wear and tear, and time and attention devoted to driving that could be for something else. (Drivers also need to consider other costs of vehicle ownership, such as the purchase price and the cost of insuring the vehicle.)
Fuel and wear and tear cost roughly 50 cents a mile, which is why employers reimburse employees for job-related personal vehicle usage at about that rate. At an average speed of 30 miles an hour (including stops, traffic conditions and so on), each mile takes two minutes of driver time. For those who value their time at more than $15 an hour, the time cost of the trip exceeds the combined fuel and wear and tear costs.
Research has shown that cutting travel costs through reduced gas prices causes people to drive more, for example by eschewing carpools and public transportation. A driverless car should also cause people to use their vehicles for more miles, because they could use their time in the car to sleep, work, watch television, read a book and do other things they might normally do at home.
Households and business may also begin to use vehicles with no human passengers or drivers in order to move goods from one place to another and, by economizing on the human driver costs, they may want to move more goods than they do today.
As people take on additional activities in their personal vehicles, they may also demand larger vehicles that necessarily require more fuel per mile.
Before driverless cars are adopted, a number of hurdles must be cleared. Some refinements in vehicle technology need to be resolved; insurance companies and state regulators must also figure out liability issues.
Even if driverless vehicles led to more congestion and more aggregate fuel consumption, driverless vehicles would be a welcome technological advance, because the billions of hours that people already devote to driving could be put to alternative uses.
But expect new driving technologies to increase the number of vehicles on the road.
Wednesday, April 17, 2013
Although wealthy people are a small fraction of the population, their behavior is of great practical interest to Treasury officials.
Every year, the United States Treasury receives extraordinary amounts of personal income tax revenue in April as individuals file their returns and reconcile the taxes they owe with the taxes that were withheld from their paychecks during the previous calendar year. Most people do not owe much, if anything, when they file their return but a small group of taxpayers has large balances to settle.
The chart below shows the inflation-adjusted amount of individual income tax receipts by the Treasury in April of each year since 1998, as reported by in the Daily Treasury Statement. The amount has fluctuated wildly, from a low of $122 billion to a high of $235 billion. The standard deviation of these April receipts is $36 billion.
The general state of the economy in the calendar year helps to predict the amount the Treasury receives in following April. At the same time, additional fluctuations in April receipts derive from the situations and behaviors of a small segment of the population not well represented in the unemployment rate and other measures of the business cycle: the wealthy.
First of all, taxes are withheld less often from asset income like dividends and capital gains than they are withheld from wages. The wealthy receive a larger share of their income from assets than from wages, not to mention that by definition the wealthy have more of both types of income. Second, much of the population does not owe any income tax – let alone owe extra in April – and the wealthy pay a disproportionate share of income taxes.
The wealthy have become an even more important driver of tax revenues in recent history, as an increasing share of the nation’s income has accrued to them. Thomas Piketty and Emmanuel Saez have compiled decades of data for the United States (and other countries). They find, for example, that the very wealthiest of America’s households — the top one-tenth of 1 percent — recently received about one-thirteenth of the nation’s income, while they received only one-fiftieth in the 1960s and 1970s.
The wealthy are sometimes idolized and other times envied, and for these reasons alone their behavior is of interest. But Treasury officials have another reason to stay abreast of the wealthy: their activities are an important determinant of the amount of revenue received by the Treasury, and when it is received.
If you have special insights into how the wealthy behave, consider applying for a job at the Treasury.
Wednesday, April 10, 2013
Employment can be a better indicator of labor market activity than unemployment, because unemployment is not the only way that a person can be without work.
The blue series in the chart below shows the reduction in unemployment since March 2012, expressed as a percentage of the population (e.g., in a population of 100 million, 0.1 percentage points means 100,000 people and 0.5 percentage points means 500,000.) In order to correct for the movement of baby boomers into retirement, I used Bureau of Labor Statistics data only for people 25 to 54 years old (this group is about 124 million and has been falling a little). Over the subsequent year, and especially since mid-2012, unemployment was reduced significantly.
But reduced unemployment is not the same as more employment, because the third labor force classification is “out of the labor force.” Neither the unemployed nor those out of the labor force have a job, but only the unemployed are actively looking for one.
The red series in the chart shows that the “out of the labor force” ranks have increased roughly as much as unemployment has been reduced, and the difference between the blue and the red series indicates the change in the fraction of the population that is employed. For the months when the blue series is above the red series, employment per capita has increased since March 2012.
Because the blue series hardly exceeds the red series, if at all, the large majority of the reduction in unemployment has been associated with offsetting increases in people out of the labor force.
While the reduction in unemployment and the growth in the out of the labor force more or less cancel each other out, jobs are at least being created fast enough to absorb the growth in the working-age population. That additional population increases demand, which contributes to the jobs being created.
Retirements and going to school could increase the number of people out of the labor force, but the data I’ve shown are for an age group in which retirement and schooling are rare. For the 25-to-54 age group, “out of the labor force” typically represents people who are finding ways to get by without working.
Some people moving out of the labor force devote their time to caring for their young children while their spouses obtain cash income for the family. That some of the growth in those out of the labor force has occurred among married people suggests that such specialization in the family could be part of the story. But the fact that this group is growing especially among unmarried people suggests that family specialization explains at best a minority of the aggregate changes.
Unemployment insurance benefits are paid only to people who report that they are actively looking for work. Some unemployed have long been skeptical that they can find a good job and are just going through the motions of job search to satisfy the unemployment program’s requirements (see this testimony to a House subcommittee by Stacey G. Reece, co-owner of a recruitment firm in Gainesville, Fla., who said he witnessed people “applying for jobs only to protect their status for unemployment insurance”).
When such a person’s unemployment benefits run out, he may look less actively for work, which changes his classification from unemployed to out of the labor force.
The termination of unemployment benefits can, and sometimes does, have the opposite effect, because the loss of income can make out-of-work people more seriously consider accepting a low-paying job. But unemployment insurance is by no means the only safety-net program. The Supplemental Nutrition Assistance Program (formerly known as food stamps) is a major and newly expanded safety-net program and does not require its beneficiaries to work or be looking for work. Curiously, SNAP has been expanding while the unemployment rate falls.
People without jobs increasingly take part in the disability insurance program, which does not require people to look for work because “disability” means that the person is unable to work. Medicaid is another major safety program that does not require its participants to work.
A significant part of the recent reductions in the unemployment rate may reflect movements of people between safety net programs rather than any significant change in their job-finding prospects.