A new CBO report on the Affordable Care Act was recently released. One of the findings, described in an Appendix, is that the implementation of the ACA would result in about 2.3 million fewer full-time jobs by the year 2021. Most of this would be due to workers voluntarily cutting back on work. This has created quite a stir, with some arguing that the ACA is bad for the economy while others arguing that as long as it’s the workers making the decision, there’s nothing wrong with lost jobs.
Jon Stewart tried to point out the hypocrisy of Republicans who rallied against “job lock” in previous years, but are now pointing to the CBO report as evidence that Obamacare is bad for the economy. But Jon appears to have misunderstood (as probably other many people do) the exact meaning of “job lock” and the difference between it and what the CBO finds.
Job lock arises because health insurance on the individual market is much more expensive than what an employer typically pays for it, partly because of the tax deductibility of employer premiums and partly because adverse selection used to be a bigger problem on the individual market (we’ll see if that remains true now). Moreover, workers with pre-existing conditions may have not been able to get health insurance at all if they left their jobs. These conditions create incentives for workers to keep working at their current job mainly for the purpose of maintaining their health insurance coverage ( = “job lock”).
It’s certainly likely that the Affordable Care Act eliminates some job lock. But it also does something else. By tying premium subsidies to income, the government is effectively creating incentives to work less. This has nothing to do with job lock – it’s called “moral hazard,” and most economists would agree that it’s a bad thing. And it’s not a hypothetical effect that evil people made up as an excuse to not help people get health insurance. Several empirical studies, cited by the CBO, find that it exists and is significant. Most of the estimated reduction in employment appears to be coming from moral hazard rather than the elimination of job lock. Thus, the voluntary reduction in employment is not something to cheer about, but something to view as a cost of the Affordable Care Act.
For more, see Casey Mulligan’s discussion of how to think about this loss of jobs.