Monday, December 21, 2015

Candidates' Health Care Plans

This is not to endorse "planning" but for convenience I have made a list of links to Presidential candidate's health care plans.

Read about America's current plan here.

Tuesday, December 15, 2015

Robert Reich: Changing the Facts to Fight the Good Fight

Yesterday Robert Reich claimed that

"Most people who lose their jobs don't even qualify for unemployment insurance."

As you can see from my cut and paste of his quote (italics added), he cited a newsmax article.  But that article lists several reasons why the unemployed choose not to apply for benefits.  On this issue of eligibility, the article says that most UNEMPLOYED do not qualify.  The reason is typically that the non-qualifying unemployed DID NOT LOSE THEIR JOBS.  As the article says,

"Unemployment benefits are only available to those who lost a job through no fault of their own. ... Many of the unemployed are recent college or high school graduates who are now looking for work. Others may have quit their jobs, or they left work years ago to take care of children and are now job-hunting again. People in those categories make up 52 percent of the unemployed."

You would think that Mr. Reich knows the facts because he was IN CHARGE OF THE FEDERAL DEPARTMENT OF LABOR, which is intimately involved with unemployment insurance benefits.  But he also knows a good narrative, which is that job loss is typically endured with no government help.

Saturday, December 12, 2015

Timothy Jost poses an economics question

In reading the [CBO's analysis of ACA marginal tax rates and the labor market], questions that occurred to me, admittedly a non-economist, included why there is no accounting for the increased employment of health care workers which surely must accompany the coverage expansions?

The answer is:
  • when we redistribute income for the purposes of paying for some people's health care, that likely creates additional jobs in the process of supplying health care to the ACA beneficiaries.
  • But we cannot forget about the other end of the redistribution. Somebody is paying for this, either by paying taxes or loaning money to the government, and that's funds that the payers cannot spend on other things. So there's a reduction in the employment of people who would be supplying the payers (whatever it was that they would have spent money on: anything from food to forming new businesses).
  • The bottom line for labor demand hinges on a comparison of the labor-intensity of healthcare supply and the intensity of supplying those other things.

In effect, CBO and many others assume that they are equally labor intensive, so that there is no net aggregate-labor-demand effect. Only the composition of labor demand is changed.  (If I had to say how the "true" comparison works, I would say that just about anything for low-income people is less labor-intensive than the things bought by high-income people, but this gap is small in comparison to the marginal tax rate effects).

I also addressed a similar question in my earlier Redistribution Recession.

Mr. Jost has been so busy digesting and summarizing ACA regulations (that you for that, sir!) that he probably hasn't had time to look at my books on the economics of Obama-era social programs.

Wednesday, December 9, 2015

Fiscal Policies and the Prices of Labor: A Comparison of the U.S. and the U.K.

Many countries of the world experienced an unusually deep and long recession after 2007.  Over the same time frame, several facets of fiscal policy were changed, especially policies related to taxation and safety net programs.  The purpose of this paper is to compare changes in fiscal policy parameters as they affected the incentives of middle-class Americans and British to be employed.  The U.K. had a “stimulus programme” followed by an “austerity programme.”  The U.S. federal government also passed what it called a “stimulus package,” followed by a major health reform.
Policy labels acquired during legislative processes are not necessarily indicative of economic fundamentals.  This paper comparably quantifies fiscal policy in terms of one of the fundamentals: the wedge between the supply price of labor and the demand price of labor.  It finds that the two countries have been different in terms of the evolution of employment taxation, on average and across demographic groups.  The American stimulus reduced average incentives to be employed by increasing cash and health benefits for the unemployed and for families with low incomes, whereas the British stimulus did the opposite by temporarily reducing its value-added tax rate and permanently reducing its basic income tax rate.  The British austerity program pushed incentives in the opposite direction as its stimulus by permanently increasing its payroll and value-added tax rates.
            The evolution of employment has also been different in the two countries.  Figure 1 displays an index of each country’s employment rates for prime-aged people.[i]  Employment fell sharply in both countries during the crisis, although less so in the U.K.  The U.K. employment recovery began earlier, and by the end of 2014 the U.K. employment rate had exceeded pre-crisis levels.  Because taxes are one (among many) of the determinants of labor market performance, comparable tax measures are necessary for carefully investigating and comparing labor market outcomes.  This paper provides tax measures, and shows how changes in tax rates are linked to specific legislation.

Taxes potentially affect work decisions in a variety of dimensions, for example: the number of weeks worked per year, the number of hours worked per week, whether to work at all during a year, and the amount of effort to put into work.  Due to the prominence of the business cycle during this period and the sheer size of gross monthly employment flows, this paper focuses on the weeks-per-year margin holding constant weekly hours and the probability of not working at all during a calendar year.  In the 21st-century U.K., for example, the single largest quarterly employment decline for the non-elderly population has so far been 0.3 million, as compared to at least 2.6 million non-elderly people who join or separate from an employer during the average quarter.[ii]  Adding just one week out of work before joining, or after separating, would therefore create a remarkable net reduction in the number employed at a point in time.  Also, the large majority of unemployment spells last less than 12 months, and some of those lasting 12 months do not blanket an entire tax year.[iii]
I follow the usual steps of public finance analysis and first look at the tax wedge – the gap between supply and demand prices created by a tax or subsidy.  The next step, left for future research, is to draw conclusions about the wedge’s behavioral effects and ultimate incidence.  Thus, with one exception noted below, the estimates in this paper do not require any assumption about the relative incidence of labor taxes on employers and employees.
Section I discusses the United Kingdom, demonstrating how many of the tax changes were ultimately offsetting in terms of the employment incentives they created.  The primary exception relates to the subpopulation receiving child tax credits, because the phaseout (sometimes referred to as “taper”) rate of those credits increased with little change in the range of incomes over which the phaseout applies.  Section II shows results for the United States, where employment disincentives have increased over time, especially (but not exclusively) among unmarried workers.  Section III shows the evolution of the employer cost and employee benefit from work – the gap between the two is the employment tax wedge – by country for workers in the middle of the wage distribution.  Section IV concludes.

[i] Both series are from the Organization for Economic Co-operation and Development (hereafter, OECD), via the St. Louis Federal Reserve’s FRED database.  In 2007-Q4, the U.K. and U.S. employment rates were 81.5 and 79.8, respectively.
[ii] Average quarterly gross flows are from Gomes (2012, Figure 1), for 1996 through 2010.  Quarterly net employment changes are from the OECD, via the St. Louis Federal Reserve’s FRED database, and, for comparability with Gomes, for the age 16-64 age group. 
[iii] The St. Louis Federal Reserve FRED data series UEMPMED shows that the U.S. median duration of unemployment peaked at 25 weeks in June 2010.  Also note that, for example, an 18-month nonemployment spell lasting from March 2009 to September 2010 nonetheless involves positive weeks worked in both calendar years (tax years in the U.S. coincide with calendar years).

Tuesday, December 8, 2015

Employer penalty amounts for 2016 and 2017

The ACA's employer penalty increases every year. It began in 2014 (although not enforced in that year) at $2,000 per full-time employee-year (over 30 employees). Its amounts in subsequent years:

2015 $2,084
2016 $2,166
2017 $2,265

These are set according to the HHS Secretary's "Premium Adjustment Percentage."

As explained in my book, the employer penalty has a special business tax treatment that makes it more expensive than employee salaries. The salary equivalent of the employer penalties are:

2014 $3,046
2015 $3,174
2016 $3,299
2017 $3,449

After increasing 4 percent in each of the first two years, the lasted annual increase is 5 percent.

Another interesting way to look at it is the number of hours that a $7.25/hour worker has to work to create enough value for his employer to pay the penalty on his behalf (let alone pay the employee's wages):

2014 8.1 hours per week, 52 weeks per year
2015 8.4 hours per week, 52 weeks per year
2016 8.8 hours per week, 52 weeks per year
2017 9.1 hours per week, 52 weeks per year

In other words, only after the ninth hour of work in 2017 will the penalty be paid and there will be value creation that can go toward employee wages, employer profits, or other taxes.

Wednesday, November 25, 2015

My Impression of Woodrow Wilson

Perhaps my favorite economics book is John Maynard Keynes' Economic Consequences of the Peace, which used the Laffer curve (before Laffer himself was born) and other economic ideas to correctly predict disaster following the Treaty of Versailles (ending World War I).

Woodrow Wilson appears throughout the book, at best as a buffoon and at worst as a villain. Keynes writes,

The President was ... lacking that dominating intellectual equipment which would have been necessary to cope with the subtle and dangerous spellbinders.... (p. 25)
...the President had thought out nothing; when it came to practice his ideas were nebulous and incomplete. He had no plan, no scheme, no constructive ideas whatever for clothing with the flesh of life the commandments which he had thundered from the White House. (p. 27)
...he was in many respects, perhaps inevitably, ill-informed as to European conditions. And not only was he ill-informed--that was true of Mr. Lloyd George also--but his mind was slow and unadaptable. (p. 27)

(page numbers are from the Royal Economic Society's 1971 edition).

Keynes may not have told the truth, but I have wondered what the scholars at Princeton thought about having the "slow and unadaptable" mind put on a pedestal on their campus.

Princeton is probably thinking about selling the naming rights of the Wilson buildings etc. But if they wanted to stick with a Princeton President, I am a fan of William G. Bowen, who (with Chicago alumn T. Aldrich Finegan) wrote

Monday, October 12, 2015

Angus Deaton: Inequality and Good Intentions

Copyright, The New York Times Company

The recent book by today's Nobel Prize winner -- congratulations to him!! -- says good intentions are a barrier to equality and to progress among the world’s poor.

For most of human history, family incomes were barely enough to survive and life was short. But in “The Great Escape: Health, Wealth and the Origins of Inequality,” Professor Angus Deaton of Princeton writes that while economic progress allowed much of the world to escape poverty, “escapes leave people behind, and luck favors some and not others; it makes opportunities, but not everyone is equally equipped or determined to seize them.”

Professor Deaton also deals with the events after the great escape: that is, how the progress of some families and nations affects the prospects for progress of those initially left behind.

Imitation is one force and works in the direction of progress for all. The poor can look to the progress of others to embark on their own escape. Professor Deaton shows how the imitation of new methods has occurred, for example, with medical technologies that have allowed the residents of a number of poor nations to live longer than Americans did just a hundred years ago, and sometimes longer than Americans live today.

But new methods can harm those with vested interests in the old ones, and the vested interests can use their political power to block competition and progress. Professor Deaton explains how “the emperors of China, worried about threats to their power from merchants, banned oceangoing voyages in 1430,” adding, “Similarly, Francis I, emperor of Austria, banned railways because of their potential to bring about revolution and threaten his power.”

Progress begets inequality, and the resulting inequality can either encourage more progress or impede it, or both. Professor Deaton suggests that inequality in the modern United States has had both of these effects.

He points to a third influence of progress and inequality on outcomes for those left behind: good intentions. As part of the world becomes rich and no longer worries about day-to-day survival, it can look outward. Many residents of developed countries have a “need to help” those less fortunate.

But the attempts to help often – perhaps even usually – go awry.

As medical progress began to diffuse around the world, people stopped dying so young, and that made for an increase in population, especially in less-developed countries. Developed countries thought they would help poor nations by encouraging population control, based on the dubious proposition that more people means more poverty.

“What the world’s poor – the people who were actually having all these babies – thought about all this was not given much consideration,” Professor Deaton says, citing China’s continuing one-child policy as an example. He adds: “The misdiagnosis of the population explosion by the vast majority of social scientists and policy makers, and the grave harm that the resultant mistaken policy did to many millions, were among the most serious intellectual and ethical failures of a century in which there were many.”

Other types of foreign aid to developing nations have also been a disaster, he says, with “pictures of starving children being used to raise funds that were used in part to prolong war, or to N.G.O.-funded camps being used as bases to train militias bent on genocide.”

Professor Deaton’s book is primarily international in focus, and he insists that help for the American poor is different and more effective than aiding the world’s poor. Nevertheless, American readers may be left wondering how much aid to American poor, is, as Professor Deaton says, “more about satisfying our own need to help, and less about improving the lot of the poor.”

Sunday, October 4, 2015

Amazon began shipping my new book today!

It is full of examples. The effects of Obamacare on the workweek are shown with diagrams rather than equations, which now part of an optional appendix.

Spending on health care has grown faster than the economy itself, even while the share of the population without health insurance was increasing. The Affordable Care Act (a.k.a., Obamacare) intends to reverse these trends, but in doing so has economic side effects. Businesses are complaining about the ACA's new tax and regulatory burdens, whereas supporters say that it is a long-overdue "shot in the arm" that will promote entrepreneurship and a "more rapid economic recovery."

Positive and negative tax effects of the ACA are carefully documented. The book offers a comprehensive market analysis of the law that arrives at conclusions as to effects on work hours, productivity, and national income. It shows what the ACA means for economic performance in the years ahead, and explains why forecasters have yet to acknowledge many of the economic forces that have been put in motion.

The book contains numerous facts and economic insights that have been unnoticed by both supporters and opponents. Anyone interested in economic performance over the next several years has to understand the contents of the Affordable Care Act from a labor market perspective and this book is so far the only comprehensive and user-friendly introduction to the topic.

Friday, October 2, 2015

Employment per capita drops 3 out of the last 4 months

through September. Below uses the same methodology I displayed in the past in order to include self-employed workers too. The self-employed component is volatile ... it would be nice to have some kind of error bands on this series ... but that is still work in progress.

Thursday, October 1, 2015

In-kind Taxation in the News

Russia is now drafting soldiers.  Below is a new economic discussion of in-kind taxes, of which the military draft is a good example.

In-kind taxes – obligations of citizens owed in goods or services, rather than money – are some of the most important taxes in human history, and even in recent times are used in significant ways.  For example, according to The Military Balance, 59 percent of countries in the world in 1995 obtained military manpower by conscription: forcing citizens into military service.  More than six dozen countries, including the United States, have constitutional provisions for taking private land using the power of eminent domain. Eminent domain is also used to redistribute intellectual property, and may be employed more frequently in the future as that type of property becomes more valuable.  In-kind “public service” labor payments to local governments can be a major part of the tax burden faced by the poor in developing countries.  Another example: two dozen countries compel their citizens to participate in civic elections. 

Although public finance deals extensively with the question of cash versus in-kind transfers, in-kind taxes are almost completely neglected.  For example, neither of the public finance textbooks by Stiglitz and Rosen mentions in-kind taxes in general, or labor conscription in particular.  The purpose of this paper is to examine the efficiency properties of in-kind taxation (hereafter, IKT), with special emphasis on avoidance behaviors.

Behaviors for avoiding the Vietnam War draft are still famous today.  They include entry into protected occupations, obtaining political favors, moving to Canada, or embellishing medical conditions.  Quantitative work on avoidance behaviors has shown that the Vietnam War draft induced a significant increase in college enrollments (Baskir and Strauss 1978).  Desertion by conscripts can be rampant, and draftees are less likely than volunteers to reenlist when their required tour is finished.   Leon Friedman (1969, pp. 1545-6) describes evasion of the Union Army’s draft, “enrolling officers … were frequently lied to, avoided, and even physically attacked… new towns sprang up just across the northern borders in Canada … some men maimed themselves in order to fail the physical requirements for the army.”  Landowners are known to modify their property in order to avoid being targeted for condemnation or other limits on land rights.  Stroup (1997, p. 57) describes how landowners have reacted to the Endangered Species Act by “managing their land … in a way that almost assures that it will not be suitable for listed species.” 

Avoidance activities like these serve to restrict the quality and quantity of supply of resources to be taken, yet the small literature on the economics of eminent domain and military conscription typically takes the supply as given, emphasizing instead the purported tendency of in-kind taxation to distort comparative advantage (i.e., that the public project fails to be supplied by those most suited to do it) while it economizes on treasury revenue.   This paper treats IKT as a price-regulation phenomenon – the public recruiter is a buyer who has coercive power over its suppliers – and explicitly models the social costs, and private benefits, of suppliers’ avoidance behaviors.

In-kind taxation has been implemented in a variety of ways. Supplier compensation is one variable. Another is the granting of an option (if any) for suppliers to substitute a monetary tax payment for their obligation to supply under the IKT.  The price-control framework readily addresses various implementation options, offers new conclusions, and changes some old ones.  Under some conditions, “fairer” IKTs – those that do not accept monetary payments and thereby widely distribute the IKT obligation – are more efficient than less fair IKTs.  These results may help explain where and when various implementation options are exercised.

The IKT implementation options present a tradeoff between avoidance costs and opportunity costs.  IKT’s are capable of realizing many of the gains from comparative advantage, even while controlling prices.  This implication appears to match the reality in which the resources obtained through IKT are far from random.  Even among men born 1950-53 whose military draft eligibility was chosen by a random draft lottery, military enlistment was by no means random.  Angrist (1990, p. 315) refers to “the fact that armed forces selection criteria were not random ...” and reports that more than three-quarters of draft-eligible men in these cohorts did not serve in the military.   At the same time, roughly ten percent of those not draft eligible did serve. Although IKTs distort comparative advantage to some degree,  the price control framework suggests that comparative advantage distortions might enhance efficiency because they can alleviate incentives to avoid the tax.

Previous work on conscription has debated the nature of the relationship between monetary taxes and in-kind taxes.  Lee and McKenzie (1992), Ross (1994), and Warner and Asch (1996) claim that economizing on treasury revenue, as in-kind taxation is supposed to do, is socially valuable because of the deadweight costs of collecting monetary taxes.  However, these papers do not model the social costs of effort to avoid IKTs; real-world IKTs interact with income taxes, and the former may generate more deadweight costs because they are more concentrated.  Birchenall and Koch (2014) use a mechanism-design framework to look at the two types of taxes simultaneously, and conclude that IKTs may reduce overall efficiency by raising the marginal deadweight cost of income taxes.  This paper does not contribute to the money-versus-IKT debate, and just assumes that in-kind taxation reacts not only to the efficiency considerations noted above, but also to social or political preferences to regulate prices paid to suppliers.  

Section II begins with this paper’s conceptual point of departure: a model of avoidance behavior as a Tullock-style rent-seeking contest.  A simple, but critical, result is that the social  costs of avoidance are convex in the amount of avoidance.  Section III lays out the other dimensions of IKT policies, relates them to empirical observations of military recruitment schemes, and interprets them in an equilibrium context.  Section IV overturns some of the conclusions from the literature.  Section V looks at policy options for the mix of social costs, and suggests that comparative advantage distortions may not be the primary social cost of IKTs.  Section V concludes with some ideas of why the incidence and design of IKT tax policies vary over time, by country, and across policy domains.

Tuesday, September 22, 2015

The Market and the Safety Net: Update

The series below is an index of hours worked per person, seasonally adjusted.  I have also indicated two months when there were major changes in safety net programs.  Call the causality police if you want!

(The horizontal black line is just the average for calendar years 2012-13 and has no particular meaning).

Friday, August 7, 2015

Business Experience Is No Cure-All in Government

Because government and business are fundamentally different in their financing and their evaluation, good business practices can make for poor governing.

The election cycle regularly brings forth successful businesspeople who argue that voters should select them for public office over seasoned politicians because of the skills and experience they acquired in the business sector. In 1996, billionaire Ross Perot started his own political party to advance his quest for the presidency of the United States. Financier Mitt Romney was the Republican nominee in 2012. And now Carly Fiorina and Donald Trump are vying with politicians for the 2016 nomination, arguing, as the New York Post put it, that “America is in desperate need of a suave, successful businessperson like Trump — or former HP CEO Carly Fiorina — to solve what ails our economy.”

In their natural habitat, business leaders work with investors, customers and employees to create value. Each of their relationships is typically voluntary in that no investor is forced to provide funds, no customer is forced to purchase the product, and no employee is forced to work rather than pursuing some other opportunity.

The financing of government is unique in that the government can, and primarily does, force people and organizations to provide resources – these are taxes and takings. As a result, those at risk of taxes or takings change their behavior in order to reduce their exposure. A family may work less, in part because of the income tax burden that comes with working more. A business may cease to operate, or operate on a deliberately limited scale, in part because of the sales tax or regulatory burdens it faces while in operation.

Tax and regulatory avoidance behaviors are known in the economics profession as “excess burdens” because the burdens of taxes and regulations exceed the amount of resources that the government is acquiring. The family that pays $10,000 per year in taxes of course loses the $10,000, but it also has lost something in the adjustments it made – maybe working less – in order to avoid paying even more tax than the $10,000 it already pays. It makes tax-avoiding adjustments because it does not voluntarily pay taxes; rather, it pays them to prevent punishment, and it is perfectly legal to pursue less heavily taxed activities.

Some of the lost tax dollars might be recovered if the government spends it wisely – something like the dividend an investor would receive if he invested funds in a wisely managed business. But the losses due to tax-avoiding adjustments are irrecoverable and have no analogue in business, because unlike taxpayers, investors, employees and customers are voluntary contributors. As a result, a government leader ought to be less ambitious with his or her project ideas than a businessperson should, because government projects have their excess burdens.

The employer-employee relationship is also different in the public sector than it is in the business sector. Public-sector employees are five times more likely to be unionized than private-sector employees are. Moreover, the ultimate government employers are the elected officials, who of course cannot persist in their roles without being re-elected. As a result, a number of government employees are “asked” to participate in political activities that support their boss’s continued tenure.

Although past governing success is no guarantee of future performance in office, the next great president will likely have more experience in public office than business triumphs.

Update on Employment per Capita

through July. Below uses the same methodology I displayed in the past. The self-employed component is volatile ... it would be nice to have some kind of error bands on this series ... but that is still work in progress.

Thursday, July 2, 2015

Update on the employment rate

through June. Below uses the same methodology I displayed in the past. The self-employed component is volatile ... it would be nice to have some kind of error bands on this series ... but that is still work in progress.

Thursday, June 18, 2015

Is Obamatrade the same as freer trade?

The legal question du jour is whether Congress should allow special voting procedures (fast track) for international trade agreement agreements negotiated by the executive branch. This brings forth the age-old debate of the merits of free trade, as if free or freer trade is at stake with fast track.

But that is jumping to conclusions without reading the text of the trade agreements.

Experts jumped to conclusion, based on chapter titles alone, that the ARRA would help the economy recover, when in fact it prolonged the recession.

Experts jumped to the conclusion that Obamacare would create economic growth, when in fact it is hindering it.

Is Obamatrade another chapter in this saga, in which the federal government hinders economic growth and in the process convinces the experts to assert the opposite?

Reading the text of Obamatrade (specifically, the international trade agreements that would be fast tracked) is a better way of answering the question than extrapolating from the above historical pattern. But the text is secret.

Here are four educated guesses, that perhaps someday might be confirmed by reading the text.

  1. There are some begger-thy-neighbor policies that are implemented when nations act unilaterally. Because they shrink the world economic pie, one might expect such policies be restricted by multinational agreements.
  2. There are some internationally procompetitive policies that are implemented when nations act unilaterally. Multinational agreements set the stage for international collusion, which benefits the parties to the agreement but shrinks the worldwide pie and harms those not party to the agreement (the latter parties can be entire nations or parts of nations not represented).  Some of the nations harmed might be small nations and African nations.
  3. Rumor has it that financial services, which includes insurance, are part of the agreements. But there is no way that the Obama administration would allow foreign businesses to sell their health insurance products -- without politically correct elements like "free" birth control, deductibles ceilings, and regulated premiums. So expect the actual trade agreements to help prevent citizens from looking to foreign businesses to supply desirable products that are currently not supplied domestically.
  4. Among world leaders, there is a near consensus to do a lot of bad economics in the name of "public health." E.g., to dishonor patents on pharmaceuticals and medical devices.

In my view one should seriously consider the possibility that the new and secret trade agreements make trade less free, rather than more.

Tuesday, June 16, 2015

Piketty's Feast

Revealed preference speaks volumes. Admittedly, my hardcover version of Capital in the Twenty-First Century was delivered “for free” by the publisher of this periodical, but the opportunity cost of retaining it was extraordinary last spring when its publisher and distributors remarkably ran out of stock and the market for used copies was surging. I did more than retain it: I also purchased the electronic version so that I could search its contents readily and accurately and fit the 685-pager in a coat pocket.

More significantly, I read it, in some places carefully enough to dig into the appendices of its online appendices. The University of Chicago—my alma mater and employer—offered Thomas Piketty a faculty position in 1993, and to our disappointment he turned us down. For several years, Piketty’s (and Emmanuel Saez’s) inequality estimates have been used for teaching public economics at Chicago, and I have personally benefitted from his tutoring regarding the details therein. The students are hungry for data on inequality and its trends, and it is my privilege to help with the grocery shopping.

[read the rest at The Independent Review]

Friday, April 3, 2015

Update on self-employment and total employment

Again the headlines (today: "below expectations") are different from the totals including self-employment. Below uses the same methodology I displayed last month.

Monday, March 30, 2015

Burtless: Two Economic Mistakes in One Sentence

Brookings' Gary Burtless writes

It seems odd that critics of the ACA emphasize the potentially adverse impacts of the law on workers forced to accept part-time jobs but fail to notice that their logic suggests more workers in total must be employed.

Dr. Burtless should have read my book, or some of the labor economics literature dealing with part-time work cited therein, to see why he has the economic logic backwards, and in fact nothing here is "odd."

My revised edition (to be published by University of Chicago Press), has the clearest explanation:

A conventional wisdom [e.g., Burtless quote] says that employment rates increase to “compensate” for work hours lost from taxes on full-time schedules. Under this view, more people working 29 hours rather than, say, 35, would mean that employers simply have to hire more or keep workers on the payroll longer in order to accomplish the tasks necessary to conduct their business. The conventional wisdom fails in two ways. ...full-time employment taxes can be avoided by reducing employment and increasing hours per employee. My conservative estimates suggest that this case will be far more prevalent than the twenty-niner situation: the ACA will reduce the nationwide weekly employment rate by 3 percent below what it would have been without the ACA.

...Moreover, even if full-time employment taxes were avoided by reducing weekly work hours, there would not be a commensurate increase in the employment rate because weekly hours would not be reduced for normal business or personal reasons, but rather to avoid penalties and implicit taxes. The penalties and implicit taxes make the business of an employer more expensive, or being an employee less rewarding, even in those cases when people avoid the new tax by adjusting their employment conditions rather than writing a check to the federal treasury. Some employers may go out of business, or never start their businesses in the first place, because of the extra cost of the tax (or the costs of adjustments needed to avoid the tax) or because of the additional costs (e.g., higher wages) needed to attract workers to positions that render them ineligible for exchange subsidies. The net result is that the labor market will involve fewer total hours, and that higher employment rates, if any, will not be enough to compensate for the reduced hours per week. This economic reasoning has been confirmed by empirical studies of previous public policies that raised the relative employer cost of weekly work hours, and failed to create a commensurate increase in employment because the average hour worked by employees had been made more expensive or less productive.

Wednesday, March 25, 2015

Friday, March 6, 2015

Fewer jobs in February?!

The headline payroll employment was (seasonally adjusted) higher in February than in January. However, the headline does not include the self employed or agricultural workers. If we add those in (from the household survey), the number of jobs fell from Jan to Feb. If we also look at it per capita terms, jobs per capita fell two months in a row after being essentially constant Nov-Dec.

Jobs in Thousands through Feb 2015

Jobs per Adult through Feb 2015

To be clear, I am measuring the vast majority of jobs from the same establishment survey that makes headlines. All I'm doing is adding an estimate for the narrow category of workers known to be excluded (in terms of FRED series, my formula is PAYEMS + LNS12027714 + LNS12032184). Interestingly, self employment fell 340,000 in the past month and 238,000 over the past year.

Friday, February 27, 2015

The War on Poverty

According to Milton Friedman

The war on poverty of which so much has been made since then has been a very good thing indeed for many thousands of civil servants who have been able to make excellent careers and many thousands of academic people who have been able to do study after study on poverty.

From Friedman on Galbraith

Monday, February 23, 2015

Opeds about Redistribution and Obamacare

I published three opeds in the Wall Street Journal, but do not reproduce them here in real time to be consistent with WSJ's copyright. Here are some shortcuts to ungated versions:

Monday, January 12, 2015

Robocall cost-benefit analysis

I just answered a Robocall from Covered Illinois touting Obamacare policies.  Will the time I spent answering the call be counted in any cost-benefit analysis?

Thursday, January 8, 2015

Republicans help to socialize medicine

Wow!  A widespread failure to consider the economics of health reform has led Republicans to push legislation to (unwittingly, may we suppose?) promote socialized medicine, and Democrats to oppose it!

The new Republican-sponsored bill ("Save American Workers Act") is about changing the "definition of full-time work" from 30+ hours to 40+ hours. But we are not really talking about definitions because the federal government does not publish the English dictionary.

What we are talking about the threshold for getting free stuff: government-financed health care in this case. Because of the original ACA, it is much more difficult for full-time workers to get subsidized coverage without experiencing an employment penalty than it is for part-time workers or non-workers. So the new bill is vastly increasing the number of people who would be deemed part time (for the purposes of getting free stuff), or could be deemed part time with a trivial change in their work schedule.

As a result, the bill will take millions of people off employer coverage and put them on Obamacare, all at taxpayer expense.  The bill will put the U.S. dramatically closer to "single payer" than it would be with Obamacare as originally written.

The great political question is: which party will consider the economics first? Maybe Democrats? The White House statement makes me think that they understand the economics pretty well, and the Wall Street Journal editorial suggests that the Republicans may be lagging.  Maybe the President will sign the bill, laughing all of the way to the history books?

Even if they are not concerned about the economic effects, do Republicans really want to bet that the President is not bluffing about veto?  Ie, bet that he is NOT willing to take another big step toward single payer with a Republican-sponsored bill that increases the deficit?  And bet that the President is NOT willing to make his Department of Health and Human Services even more powerful than it already is?  And bet that the President is NOT willing to make a move that makes several 2016 Presidential contenders look like fools?

(Original here)

P.S. The Congressional Budget Office estimates than "only" one million people would change coverage coverage as a result of the bill. With all due respect for their admirable efforts, the CBO is wrong on this.  They are using a variant of the Gruber microsimulation model (all of the sudden, even the Wall Street Journal is relying on the nonsense output from the model), which fails to include any market analysis and improperly uses elasticities from an era where the (non-elderly) alternatives to employer coverage primarily were Medicaid or being uninsured. All of this is explained in my book about the economic consequences of the health reform.