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.

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