Evening Must-Read: Josh Barro: How Obamacare Discourages Work — And Why That Could Be A Good Thing

Josh Barro: CBO Report Obamacare Discouraging Work: “The law will reduce work hours through several mechanisms, some of which are desirable and some of which aren’t….

The decline in work will be almost entirely because people choose to work less, not because employers choose to hire less. Republicans tend to talk about Obamacare as ‘forcing people into part-time work’. But CBO expects the law to have ‘small or negligible’ effects on labor demand…. This has important implications for wages: While a decline in labor demand will tend to reduce wages, a withdrawal of labor supply may actually help push them up, as employers compete to hire from a reduced pool of available workers….

The work-discouraging substitution effect from Obamacare is clearly bad. For workers who rely on health insurance subsidies created by the law, Obamacare will reduce the marginal return to labor… because a higher income will mean a smaller health plan subsidy…. The work-discouraging income effect from Obamacare is mostly good…. Easy availability of comprehensive, subsidized health plans will make it easier for people to retire before age 65, quit a full-time job to start a business, or shift to part-time work and spend more time raising children or attending school. This is a feature, not a bug…. Social Security and Medicare reduce employment among seniors; this (making retirement possible) is a key aim of those programs, not a negative side-effect….

Any alternative policy to significantly expand health coverage will also have income and substitution effects that reduce labor supply…. For example, the Republican Coburn-Burr-Hatch Obamacare alternative….

Obamacare could be improved so it doesn’t discourage labor supply as much. These fixes should be focused on alleviating the substitution effects, not the desirable income effects. The most obvious way to do this is by repealing the penalty on employers who don’t provide health coverage…. The phaseout range for subsidies could be extended…. Most importantly, more effective policies to contain health care costs would reduce the size of the subsidies necessary….

Obamacare may positively affect the labor market in ways not addressed in the CBO report. De-linking insurance from employment isn’t just good for personal fulfillment; making it easier for people to go back to school, take jobs that don’t come with health insurance, or start their own businesses should lead to better job-matching and higher productivity….

Broadly, one key goal of health policy should be to let people make work decisions without worrying about how those decisions affect their health insurance.