Will ObamaCare Help or Hurt the Economy?

by John Goodman,

Ask almost any employer and there won’t be much doubt: the Affordable Care Act is likely to raise the cost of labor, discourage hiring and have a negative effect on the economy. Some economists are pushing back, however.

In 2011, David Cutler of Harvard testified that the Affordable Care Act would reduce average health care costs by about 5 percent by 2015. That would decrease the cost of labor for employers and increase nationwide employment. Cutler also organized and signed an economists’ letter to Congress asserting that “repealing the Affordable Care Act would produce job reductions of 250,000 to 400,000 annually.”

But how much of this push back is just politics, as opposed to real economics? Although Cutler is an able health economist, he’s not an expert in labor economics. Someone who is at the top of that field is University of Chicago economist Casey Mulligan, who took Cutler to task for ignoring all of the ways in which ObamaCare discourages hiring, discourages full time employment and discourages businesses from becoming large rather than small. At The New York Times economics blog he writes:

“Neither Professor Cutler’s testimony nor the economists’ letter mentioned that the Affordable Care Act also creates explicit taxes on employers, subsidies for layoffs and various implicit taxes on employees with many of the same economic characteristics as taxes on employers.”

According to Mulligan’s calculations:

“[T]he tax effects that Professor Cutler left out are about 10 times greater than, and in the opposite direction of, those he conveyed to Congress…If his estimate of the cost-savings channel is accurate, and I am right that the overall labor market effect of the act is about 10 times larger (in the other direction) than the cost-savings channel, we might then expect the act to contract the 2015 labor market by about 3 percent rather than expand it.

That’s a loss of 4 million jobs!

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