How Obamacare Begets Gender Inequality

How Obamacare Begets Gender Inequality

By Casey Mulligan

In the past four decades, millions of American women have entered the workforce, sought out new occupations, and embarked on professional careers. In fact, by 2013, just 18 percent of working women worked only part time. This marks a sharp reversal of conditions in 1975, when men did the vast majority of full-time work, while women were less likely to be employed at all and nearly a quarter worked 20-hours per week or less.

These gains in gender equality are threatened by two provisions of the Affordable Care Act (ACA) ironically advertised as benefitting American workers. Taken together, these policies could drive the percentage of women working only part time back to what it was 40 years ago.

The first provision is the ACA's penalty on large employers who do not offer health insurance to their full-time employees, beginning next year and going into full effect in 2016. The second relates to the eligibility rules for the law's new health insurance assistance that began this year. The ACA imposes a penalty on large employers (generally those with 50 or more workers) who fail to provide health insurance for each of their full-time employees-defined by the ACA as those working 30 hours a week or more. Because part-time employees do not count toward the penalty, the provision induces employers to reduce more of their workers to 29 hours a week or less-a group now being referred to as the "29ers."

Compounding this effect is a disincentive on the employees themselves. The penalty does not apply to businesses that offer coverage to their full-time employees. But their full-time employees are finding that they are not eligible for the ACA's new assistance with insurance premiums and deductibles because the law requires them to join their employer's plan (or a plan offered by a family member's employer).

Part-time employees are not restricted in this way, except in the increasingly rare instances that they too are offered coverage by their employer. As a result of its exclusive access to the law's new health insurance assistance, part-time employment becomes comparatively more desirable to workers, or at least less undesirable, than it was in the past.

Both of these employment disincentives are worth thousands of dollars per year and, in some cases, more than a thousand dollars per month. Both will lead to less full-time work, and even less productivity per hour of work that is performed. This is because some positions are vastly more efficient when worked full-time, and the new employment disincentives will not be enough to change that.

Nevertheless, a number of positions have traditionally been 30-to-39-hour jobs, and those who occupy these jobs typically will have less trouble adapting to a 29-hour schedule that avoids the employer penalty or allows the worker to get the ACA's new assistance. Women are at least twice as likely as men to be in those positions, which means they are twice as likely to be 29ers once the new health law goes into full effect.

Some defenders of the ACA may contend these factors will relieve many workers of the "job lock" previously associated with employer-provided health coverage, or the need to tolerate the drudgery of long hours just to keep their insurance. They may claim women are "voluntarily" leaving full-time positions to spend more time with their families, or even to pursue art, music, and other hobbies.

Their theory would make some sense if workers who left full-time employment were paying the entire cost of their decisions, but what's really happening is that taxpayers are bribing them to work less. Both female and male 29ers will be making the best of a bad situation created by public policies that take away much of the financial reward from working full time. To make matters worse, the new 29ers will be creating additional burdens for other taxpayers as the 29ers receive more non-ACA subsidies and pay less in taxes than they would as full-time workers.

These new ACA employment disincentives are just two among many factors determining the kinds of work schedules that employers offer and employees accept. Regrettably, they are likely to have the unintended consequence of turning back the clock on decades of progress women have made in the American labor market.

Casey B. Mulligan is an economics professor at the University of Chicago and author of a new working paper published by the Mercatus Center at George Mason University on "The Affordable Care Act and the New Economics of Part-Time Work." He is also the author of "Side Effects: The Economic Consequences of the Health Reform."

What's happening to the workweek in low-wage industries?

http://news.investors.com/politics-obamacare/020714-689319-low-wage-workweek-hits-new-low-with-obamacare.htm

She's a 29er

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Much has been made of the burdens of the Affordable Care Act on healthy young men, but young women are the ones most likely to see the law push them out of full-time work.

A “29er” refers to someone working 29 hours per week, the maximum that an hourly employee can work and still be considered part time by the federal government, as defined under the Affordable Care Act.

Before 2014, when the new federal definition took effect, Census Bureau data suggest that hardly anyone worked exactly 29 hours a week: about one in 1,000. Only six in 1,000 worked 26 to 29 hours a week.

The Affordable Care Act requires that, beginning next January, large employers provide health insurance for their full-time employees (by the federal definition) or pay a penalty per full-time employee on the payroll. The annual penalty is $2,000 and, unlike employee salaries and benefits, is not deductible from business taxes. Small employers do not owe a penalty, unless they cross the 50-employee threshold, in which case the annual penalty is $40,000 for having that 50th employee. Subsequent hires would each carry a $2,000 annual penalty.

Part-time employees do not create a health-insurance requirement or a penalty for their employer, which gives large and small employers an incentive to reduce at least some employees’ hours to 29 hours. A number of employers plan to do exactly this.

But the incentives are not limited to penalty avoidance by employers, and began this month. Employees in families with income of less than 400 percent of the poverty line will lose access to generous federal subsidies if they make themselves eligible for employer health coverage by working full time at an employer that offers coverage to such employees.

In other words, employees may have something to gain, or less to lose than they did before this year, by limiting themselves to a 29-hour work schedule. For full-time salaried workers (as opposed to hourly workers) the federal definition is those who work more than three days a week. (For the purposes of discussion, I will refer to the three-day limit as “29 hours,” although in practice it may be, say, a 26-hour schedule).

As the new law goes into full effect the next couple of years, I expect that more than 2 percent of workers will be 29ers, an increase by more than a factor of 10. Moreover, as the labor market adjusts to avoid penalties and enhance subsidies, the adjustments will tend to be those that are least costly.

One of the least costly ways to move full-time workers to the 29er group would be to focus on those who already work slightly more than 29 hours. It is usually less costly for a 35-hour-per-week worker to cut hours to 29 than for a 55-hour-per-week worker to do so.

I used the Census Bureau’s data to put together a sample of people likely to be 29ers over the next couple of years, based on working 30 to 37 hours per week before this year and not having health insurance available through a spouse (if married). Women outnumber men more than 2 to 1 among likely 29ers. The 29ers are also likely to be less than 30 years old.

Naturally, working fewer hours means less pay. By disproportionately reducing women’s work hours, health reform may have the unintended consequence of increasing the gap between men’s and women’s wages and salaries.

[Note: this does not mean that women are "hurt" by the ACA ... it just means that (on average) they experience the ACA's costs differently than men will]

Policies That Discourage Full-Time Work

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The payroll tax holiday was an important factor helping the workweek recover after the recession, but the holiday is over and new public policies are pushing in the other direction.

Full-time positions pay more than part-time positions, even on an hourly basis.  Part-time positions require less time away from family, schooling, etc., which makes the choice of full-time versus part-time work a trade-off between income received and the amount of the time commitment.

A higher income tax or payroll tax rate tilts the balance toward part-time work because it reduces an important benefit of full-time work: extra income to spend. A lower rate does the opposite.

You might say that work schedules are set by employers, and that workers have no say in the matter.  But that ignores the fact that employers compete for employees, which is why many employers spend resources to offer health coverage, flexible scheduling and other fringe benefits that employees find attractive.

Historically, employers have responded to high income tax rates by creating part-time positions, especially when large numbers of potential employers were facing those rates.

For many years, the Social Security earnings limit reduced the reward to full-time work among elderly people, because a large part of their Social Security benefits were withheld when beneficiaries earned more than the limit.  As a result of the income tax implicit in the Social Security rules, many businesses created part-time positions that were attractive to older workers because their earnings stayed below the limit, and many accepted them.

Between 2007 and 2010, expansions of the food stamp program, known as SNAP, made part-time work increasingly attractive for those who would face the program’s income limit if working full time. About the same time, federal mortgage modification guidelines acted as income-tax increases on homeowners who owed more on their mortgage than their home was worth, because the more the homeowner earned, the less the mortgage balance was reduced. As a result, a few people found part-time work to be a more effective way of cutting their debt.

I have quantified the disincentives for full-time work and their evolution, accounting for the fraction of the population taking part in these and other programs and showing the results in the chart below.  A higher tax rate means less incentive to work full time and more incentive to work part time.

Source: Author’s calculations.

Between 2007 and 2012, there had been little net change in the tax rate on full-time work because the 2011-12 payroll tax holiday largely offset the increases from SNAP and mortgage modification. I think this is an important reason that weekly work hours recovered from the recession much more quickly than employment has.

But a year ago the payroll tax holiday expired and, more important, beginning this week incomes earned will reduce the subsidies that families might hope to receive as part of the new insurance plans created by the Affordable Care Act.

For these reasons, the recovery of the workweek from the recession cannot be taken for granted.

Shorter Workweeks are Likely in the New Year

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Three economic forces are pushing toward shorter workweeks for employees during the new year.

The red line in the chart below is a monthly index of the employment-to-population ratio, normalized to a value of 100 in December 2007, when the recession began. In this series, each employed person counts the same, regardless of how many hours she or he works.

Federal Reserve Bank of St. Louis Average weekly hours of private employees (blue line) have returned to the level last seen before the recession of 2008-9, shown as gray area. But the percentage of Americans with jobs (red line) plummeted in the two years after the recession began and has remained steady since then.

By that measure, there has been hardly any labor market recovery because, as indicated by an index value of 93, employment per capita still remains 7 percent below what it was before the recession began.

Average weekly hours of private-sector employees (the blue line) returned comparatively quickly to near their prerecession level and have maintained that level over the last two years.

I predict that average weekly work hours will decline again over the next year because fiscal policy is now switching from penalizing part-time work to rewarding it.

Since 2008, government benefits for the long-term unemployed have served as a penalty for part-time work, because unemployment benefits are largely – if not entirely – withheld when an unemployed person accepts a part-time position. Moreover, people moving to part-time work from either full-time work or unemployment will find that the move renders them eligible for fewer benefits the next time they are laid off from a job.

Many of the part-time-work penalties disappear this week when the federal government stops paying long-term unemployment benefits (short-term unemployment benefits will continue, and they embody some of the same incentives), although the penalties would reappear should Congress resurrect the program.

Full-time work has traditionally offered health and other benefits that part-time jobs rarely do, and those benefits have kept a number of workers in full-time positions. The Affordable Care Act aims to end that advantage, by giving workers opportunities to obtain insurance outside the workplace.

In addition, in some cases the new insurance opportunities can be so inexpensive compared with employer insurance that people stand to, paradoxically, have more disposable income from working part time than they do from working full time.

The third economic force is that in January 2015 the Affordable Care Act begins to penalize employers that do not offer affordable health insurance, except that part-time employees (working less than 30 hours or four days a week) are exempt for the purposes of determining the penalty. This is another reason that part-time work – especially positions with 29-hour weekly work schedules – would increase at the expense of full-time work, at least if the mandate goes ahead as planned.

All together, it looks like many of the jobs in the new year will involve less work.

Part-time Employment Arithmetic

Yesterday I wrote about some of the arithmetic of part-time employment, and have hysterical reactions that fit into three categories:

1. Arithmetic misunderstanding. Here's more detail on how it works:
   Employer cost = Gross employee compensation + employer health premiums. In my full-time example, $56,000 = $46,667 + $9,333.
   
   
   Employee compensation = employee income subject to tax + employee health premiums. $46,667 = $42,000 + 4,667.
   
   
   Employee income subject to tax, net of health and work expenses = employee income subject to tax - out-of-pocket health expenses - work expenses. $34,000 = $42,000 - $3,000 - $5,000.

2. What about income taxes, welfare payments, etc.?. Those are a function of "Employee income subject to tax," which is $42,000 regardless of whether working full or part time. That's what makes my example so simple: these payments can be ignored for the purposes of the comparison because they would be the same entry in both columns. But even more complicated examples retain the essential message of my calculations: the ACA puts an extraordinarily large implicit tax on full-time employment relative to part-time employment. If you don't like simple examples that make a general point, and would rather see all of the statistical detail, read my my research papers rather than my blog posts.
   
3. Anyone who points out the perverse incentives in progressive legislation is despicable and fraudulent. The good news is that the overwhelming majority of economists, including those who avidly support the Affordable Care Act, are ignoring incentives like these and thereby retaining their option to be respectable and honest.
   

The New Economics of Part-time Employment

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Even without employer penalties, part-time work will become more common next year and more expensive for taxpayers.

Much attention has been paid to people without health insurance, but for the purposes of understanding the entire labor market we must acknowledge that the uninsured are a minority of the population. Most of the work force has health insurance through full-time employment or through a spouse’s employment.

Part-time employment rarely includes health benefits. The lack of health benefits and the lower pay for part-time work have traditionally discouraged people from taking part-time jobs rather than full-time jobs, but both of those attributes of part-time jobs are about to change.

Beginning next year, the Affordable Care Act will subsidize the health expenses for non-elderly families with income of 100 to 400 percent of the federal poverty line (about half of the non-elderly population has incomes in that range), but only if they are not offered health insurance through an employer. In other words, the new subsidies will not be available to most of those who do full-time work.

Because part-time workers will be eligible for the subsidies except in the rare instances in which their employer covers them, full-time work will no longer carry the advantage of access to health insurance. That by itself will encourage more people to seek part-time work.

Moreover, the subsidies will many times be generous enough that workers can make as much money in a part-time position as in a full-time one. The table below illustrates what may happen.

The left column of the table shows the economics of a full-time position (40 hours a week). Between employer health insurance premiums and the employee paycheck, this position costs the employer $56,000 a year, or about $28 an hour. The full-time employee’s pay after his portion of health insurance premiums are withheld is $42,000.

Although covered by health insurance, the employee and his family incur $3,000 in additional health costs because of health insurance deductibles, co-payments and so on ($3,000 is typical for a family of four with a comprehensive health plan). The employee also has work expenses for commuting and child care, which I assume to be $100 a week when working full time.

The part-time column of the table shows a part-time position with the same employer cost per hour: $28. Because the position is part-time (only 30 hours a week), the annual employer cost is $42,000. All of the $42,000 consists of cash compensation for the employee, because the part-time position does not include health insurance.

The part-time employee has to pay for his own health insurance, but the new law limits his premiums to $2,149 (the new law pays the other $12,658 from the United States Treasury) and limits his out-of-pocket health costs to $2,193 (the new law pays the other $2,907; by design the new law increases deductibles and co-payments but uses subsidies to offset those increases for low- and middle-income families).

After work expenses ($75 a week for part-time employment) and health expenses, the part-time position pays $33,908: almost exactly the same as the full-time position’s $34,000.

By taking a part-time position, the employee can have comprehensive health insurance coverage and make almost the same money as he would in a full-time position. Thus the two traditional deterrents to part-time employment are disappearing. In effect, the new subsidies totaling almost $16,000 offset, from the point of view of employers and their employees, the loss of production that occurs from working 30 hours a week rather than 40.

None of the above relates to the employer penalties associated with the new law, because the employers covered by my example avoid the penalty by continuing to offer comprehensive insurance to full-time employees. Those penalties create yet another set of reasons that part-time employment will become more common next year.

Shifts from full-time to part-time work will be remarkably more attractive for employers and employees than they used to be, and taxpayers will be picking up the tab.

Where a Minimum-Wage Increase Would Bite

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Last week I explained how I estimated that the July 2009 federal minimum-wage increase reduced national employment by about 800,000. That 800,000 is the sum of employment impacts for each of several demographic groups and can therefore be used to estimate which groups were most affected by the wage increase.

For each group distinguished by age and part-time status, I calculated “impact”: the percentage gaps between actual per capita employment after July 2009 and the employment I estimated to occur absent the minimum-wage increase.

For example, I found the part-time employment impact among teenagers to be negative 14 percent: that is, 14 percent fewer teenagers were working part time since July 2009 as a result of the federal minimum-wage increase.

The basic economics of the minimum wage suggests that employment impacts will be greatest among groups with the lowest hourly wages. Teenagers employed part time have particularly low hourly wages, and the hourly wages for teenagers employed full time are not much greater. The percentage impact on people 20 and over working full time should be essentially zero, because 98 or 99 percent of them would make more than the minimum wage anyway (see Table 1 of this paper).

The chart below compares, by group, the minimum-wage increase’s employment impact (vertical axis) to a measure of the hourly wages of the workers in the lowest-paid quarter, shown on the horizontal axis). The diagram shows that impacts are negative, or essentially zero, and that the size of the impact is progressively smaller for groups with higher wages – exactly as economic theory predicts.

Compare, for example, the minus 13 percent impact for teenagers in part-time jobs (25 percent of whom were earning less than $5.17 an hour in 2008 — note that a -0.13 log change is essentially a 13 percent reduction) with the zero percent impact for full-time workers 20 to 54 (75 percent of whom were earning more than $11.76 an hour).

Teenage employment rates have fallen to 25 percent from 35 percent over the last four years. Much of that drop cannot be attributed to the federal minimum wage, but my estimates show that the federal minimum wage was a significant factor.

Profs. William E. Even and David A. Macpherson also studied the recent minimum-wage increases for the Employment Policies Institute, using a different methodology. They focused on teenagers (not distinguishing part time and full time), and their state-level model included three federal minimum-wage increases (2007, 2008 and 2009).

They found that those three increases cost 114,000 teenage jobs (I found 800,000 for all age groups combined, only some of which were teenage employment effects; Prof. David Neumark had estimated that teenage and young-adult employment would be reduced 300,000 as a result of the July 2009 minimum-wage increase).

A minority of states were not affected by federal minimum-wage increases because their own state-legislated minimum wage would exceed even the new higher federal minimum (the federal minimum prevails over the state minimum whenever the former is greater).

Thus, whatever jobs were lost because of the federal increase would be lost in the states — 31, after the 2009 increase — and the District of Columbia (which sets its minimum to be $1 above the federal minimum, so when the federal minimum jumps, do does the district’s). Professors Even and Macpherson’s state-level estimates confirmed that this was, in fact, the case.

For the same reason that my model separately considered teenagers and part-time workers, Professors Even and Macpherson followed their teenagers study with a study of 16-to-24-year-old men with less than a high school diploma. They found that each 10 percent increase in a federal or state minimum wage decreased white employment by 2.5 percent, Hispanic employment by 1.2 percent and black employment by 6.5 percent.

For the time being, at least, it seems that increasing the federal minimum wage again would give a few workers a small raise — but at the cost of eliminating entire paychecks for the young, less educated and least skilled.

How to Create Jobs and Cut the Deficit

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Another federal minimum-wage increase would not, as some proponents promise, create jobs, but would reduce employment.

A few months ago, The New York Times editorialized that America’s minimum-wage workers “need a raise.” The Center for American Progress said a higher federal minimum wage “encourages spending, investment and economic growth.”

Many economists expect the minimum wage, if it has any effect, to raise employer costs and thereby reduce employment, especially among people who are likely to work in minimum-wage jobs, like part-time workers.

Federal and state minimum wages have changed a number of times over the years, and each of those instances provides an opportunity to test the employment-reducing hypothesis. For the episodes before 2007 (which I’ll refer to as the historical minimum-wage increases), many statistical studies of minimum-wage effects are summarized in books by David Neumark and William L. Wascher and David Card and Alan B. Krueger.

Not everyone interprets the historical evidence the same way. The New York Times and the Center for American Progress cited some of that evidence to alleviate concerns that a minimum-wage increase would reduce employment.

Even those who believe that historical minimum-wage increases did little, if anything, to reduce employment are still likely to appreciate that a minimum wage that was high enough — a hypothetical $100 an hour, for example — would significantly depress employment. The real disagreement is whether historical minimum wages were high enough, and the economic situations right, for those increases to destroy a large number of jobs.

The most recent federal minimum-wage increase, on July 24, 2009, had the potential to have different effects than its predecessors. Adjusted for inflation (and deflation), by 2009 the real federal minimum wage had been raised to a level 32 percent higher than it had been in 2006 — nowhere near our hypothetical height, which we all agree would be destructive — but perhaps high enough to have some of those effects.

In addition, during a recession hiring decisions may be especially sensitive to employment costs, though some economists say recessions make employment less sensitive to wages.

It’s also easy to exaggerate the effects, good or bad, of the federal minimum wage, because seasonal workers, employees who rely on tips and others are exempt from it, and a few states have minimum wages above the federal minimum.

For these reasons, I have been studying the 2009 federal minimum-wage increase by itself and trying to separate the effects of the recession from the effects of the wage increase (see this recent publication for more details; my next posts will point to some other findings from the 2009 increase).

Part-time and teenage employees are especially likely to have hourly wages near the federal minimum. The red line in the chart below displays seasonally adjusted national part-time employment by month, from the Census Bureau’s monthly household survey. Before July 2009, part-time employment increased by about three million during the recession and that month reached the peak level of part-time employment.

To investigate the possibility that the July 2009 wage increase stopped further increases in part-time employment and perhaps affected other employment categories, I estimated a monthly model of national part-time and full-time employment per capita for each of 12 demographic groups distinguished by race, gender and age (white and nonwhite, male and female, and 16 to 19 compared with 20 to 54 and 55 and over), using data from before the increase.

I used the model to forecast part-time and full-time employment for each demographic group for August 2009 through December 2010. The aggregate deviation of the part-time predictions from the actual was added to the red line to arrive at the aggregate part-time prediction shown as the chart’s blue line.

After falling 9.3 million during the recession through July 2009, aggregate full-time employment fell another 1.8 million by the end of the year and remained below July 2009 levels at the end of 2010. Some people dismissed from their full-time jobs probably had trouble finding another suitable one, and some of them worked part time while they searched.

Consistent with this story, my estimates predicted that part-time employment would have continued to increase during the second half of 2009 because, before the increase, part-time employment tended to increase with full-time job losses.

The actual and predicted data depart dramatically beginning in September 2009, with actual part-time employment 1.2 million below predicted part-time employment by December and averaging 975,000 part-time positions below what was predicted over the months August 2009 to December 2010.

A small number of these job losses were offset by possible increases in full-time employment (relative to what it would have been – more on this next week). I find the total job loss from the July 2009 minimum-wage increase to be about 800,000.

If raising the minimum wage reduced employment by 800,000, cutting it back to its early 2009 level is likely to increase employment by 800,000. That would add a bit to government revenue as some of those people moved from unemployment benefits to tax-paying workers.

Attack of the Minimum-Wage Increase

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After initially increasing by almost three million during this recession, part-time employment fell sharply during the last five months of 2009. The federal minimum wage hike on July 24, 2009, is probably to blame.

The red series in the chart below is the number of people employed part time, as measured by the Census Bureau’s monthly survey of United States households. Part-time employment increased for nine months in a row from September 2008 until July 2009, for a total increase of almost 2.5 million positions over that time. (The household survey is small enough that the month-to-month fluctuations can look a bit random, but economists find it the best measure of labor-force trends that last more than a month or two.)



At first glance, any employment increase seems at odds with the basic current of this recession, which has been month after month of heavy job losses. In fact, full-time employment fell by 11 million, and much of the part-time employment can be understood as a partial offset to those losses.

For example, some people laid off from their full-time jobs are having trouble finding another suitable full-time job, so they are working part time while they wait. Part-time jobs pay less than full-time jobs — even on an hourly basis — so some employers may be using part-time employees to accomplish tasks where they formerly might have used full-time jobs.

From December 2007 until July 2009, for every five full-time jobs lost, part-time employment increased by one job. The blue series shown in the chart aims to predict the creation of part-time jobs from the data on full-time jobs alone, by assuming that each five full-time job losses created one part-time job. The series shows how this approach closely fits not only the overall increase, but also several of the changes in trend over that period.

Since July 2009, full-time employment has continued to fall, but we no longer see the partly offsetting part-time employment increase. The July 24 minimum-wage increase most likely changed that pattern.

In other words, if the minimum wage had stayed at $6.55, part-time employment probably would have closely followed the blue series in the chart, as it did until July 2009.

The federal minimum wage prohibits employment that compensates (not including fringe benefits) the employee less per hour than the federal minimum — $6.55 before July 24, and $7.25 since then. Thus, a $7-an-hour job was legal for most of July, but has been illegal since then.

Many economists expected that the new prohibition on jobs paying between $6.55 and $7.24 would disproportionately affect part-time jobs. After all, recall that part-time employment typically pays less per hour than full-time employment does.

Some of those employers raised their pay to conform to the new minimum, but others were expected to eliminate some of their part-time positions. That’s likely why the data show that, starting with August 2009, part-time employment began to reverse its prior trend.

With all of this recession’s significant labor market problems, it’s too bad that an ill-conceived and unnecessary minimum-wage law added hundreds of thousands of people to the list of those who today cannot find jobs.