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.

1 comment:

Wilson said...

On topic of ACA, but re GDP figures- wonder if Prof. Mulligan has a thought on this:

From the 3-27-2015 BEA report on 4Q14 GDP, 3rd estimate:

Of the 2.2 pct pts of GDP growth, 0.88 pct pts were contributed by 'Services - Health Care'. I.e., 40% of 4Q's growth came from an increase in health care spending. And the previous Q, 3Q14, it was 0.52 Not as large as 0.88, but still outsized.
Here's the link. See Line 17 of Table 1.5.2:
http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1%20-%20reqid=9&step=3&isuri=1&903=32#reqid=9&step=3&isuri=1&903=32
This may be continuing from 2014 into 2015. See the 3-30-2015 BEA report 'Personal Income and Outlays: February 2015'.