What is the truthiness level of the GOP talking point that Obamacare is largely or mostly to blame for the slow economic recovery, particularly anemic job growth?
On Monday’s edition of CNBC’s always must-watch Kudlow Report, Wisconsin governor and potential 2016 Republican presidential candidate Scott Walker offered the familiar GOP take on President Obama’s health care reform plan:
Employers need certainty and the fact is employers aren’t seeing it. When I go out and visit firms, companies and small businesses, they say ‘We don’t know what’s going to happen next. There is still incredible uncertainty about the so-called Affordable Care Act.
As it so happens, former Obama economist Austan Goolsbee was also on the program. Echoing what the the White House has been saying for months, Goolsbee argued that if the ACA really was to blame, one would expect to find weaker job growth in industries that currently offer health insurance to fewer employees. Instead, job growth in these “low coverage” industries has been faster than the rest of the private sector.
So the terms of the debate are set. My take:
1. Low-wage, low-coverage sectors have been adding jobs at an accelerating rate vs. the overall economy. Retailers and restaurants accounted for roughly half of all job growth, as measured by the BLS household survey, during the past three months vs. about a third over the past year. More than half of all jobs in July. So Goolsbee has a good point.
2. Then again, low-wage jobs usually produce a large portion of the jobs gains in a recovery. The Atlanta Fed: “The lowest-wage sectors have consistently produced 40 percent to 50 percent of the job gains in recent recoveries. Though the percentage was slightly higher in July, it was not materially so. And this recovery does not look at all unusual when taken as a whole.”
3. But what kind of jobs? Are employers spreading more hours over more jobs by hiring more part-timers? Most of the net increase in jobs so far in 2013, 71%, has been part-time gigs. (But keep in mind this is a notoriously volatile survey.)
4. Indeed, the media is full of stories of retailers and restaurant owners admitting they prefer hiring part-time workers right now because of Obamacare. What’s more, Investor’s Business Daily reporter Jed Graham has discovered ”an unprecedented drop” in average weekly work hours in industries where the legislation logically would have a big impact, including home-improvement and general merchandise stores.
4. Gallup recently asked small business owners if they had taken action in response to the ACA:
… 41% of small-business owners say they have held off on hiring new employees and 38% have pulled back on plans to grow their business. One in five (19%) have reduced their number of employees and essentially the same number (18%) have cut employee hours in response to the healthcare law
5. A recent analysis from the San Francisco Fed gives some credence to the idea that policy and political uncertainty in general is hurting job growth, at least through last year:
Increased uncertainty may discourage businesses from filling vacancies, thereby raising unemployment. An estimate indicates that, without policy uncertainty, the unemployment rate in late 2012 would have been close to 6.5%, 1.3 percentage points lower than the actual rate.
As part of its methodology, the SF Fed draws upon the Baker-Bloom-Davis Economic Policy Uncertainty Index. It measures policy-related economic uncertainty by looking at a) newspaper coverage of policy-related economic uncertainty, b) the number of federal tax code provisions set to expire in future c) disagreement among economic forecasters as a proxy for uncertainty. Given potential work (dis)incentives created by Obamacare and its implementation woes – the postponement of the employer mandate and troubles setting up the exchange — it’s not a stretch to think uncertainly about the health care law would be caught by the EPU index.
6. But wait! As The Washington Post’s Jim Tankersley has noted, the EPU index is now down to its lowest level since 2008. So there has been a big decline in political and policy uncertainty as Obamacare implementation approaches.
Tankersley notes that the decline in uncertainty has not been accompanied by a boom in jobs overall. Yet given this year’s fiscal austerity, it’s probably worth noting that 2013 job creation has been a bit higher than last year, 192,000 net new jobs a month vs. 180,000 through first 7 months of 2012. So maybe a decline in uncertainty plus the Fed’s bond buying has played a role.
7. There is more to Obamacare than just mandates and regulations, of course. What about the economic impact of the considerable tax hikes? AEI’s Alan Viard outlines them:
Under the healthcare law adopted in March, the Medicare tax will rise that year, from 2.9 to 3.8 percent. Also, a new 3.8 percent tax, called the Unearned Income Medicare Contribution (UIMC), will be imposed on high-income taxpayers’ interest income and most of their pass-through business income that’s not subject to Medicare tax. So, under the president’s proposal, virtually all of top earners’ ordinary income will be taxed at 44.6 percent, starting in 2013. We’re not just going back to the Clinton-era rates of 40.8 and 43.7 percent.
A similar pattern holds for capital gains. Under the president’s plan, in 2011 and 2012, the top rate on gains, now 15 percent, will go to 20 percent, with the stealth provision adding 1.2 percentage points, sending the tax back to its 1997–2002 level of 21.2 percent. Starting in 2013, though, capital gains will also be hit by the UIMC, pushing the rate to 25.0 percent.
Bottom line: one can make a reasonable, plausible case — though hardly airtight — that there are fewer full-time jobs and less GDP growth than there would be otherwise because of health care reform, in all its aspects. But is Obamacare the main reason for the slow recovery? That is a blog post for another day, one that would focus more on monetary policy, the aftermath of the collapsed housing sector, Dodd-Frank, and automation, among other factors.
Some employers have indicated that they either have or will shift to more part-time workers in response to the health law. If this were occurring, it would have a positive effect on payrolls (assuming one full-time job is replaced with multiple part-time jobs) but would show up as a greater number of part-time workers in the household survey. This is to some degree what we have seen in recent employment reports, where part-time workers as a share of the population have risen since the start of the year, while full-time employment has been essentially flat.
The reference period for determining full-time employment is determined by the individual employer so the timing will vary, but to meet federal requirements it is likely that most employers would need to start their reference period in Q3 if they had not already.
While it is possible that the trends over the last few months might reflect the approaching onset of the now-delayed employer mandate, it is also important to note that the shift toward part-time labor pre-dates enactment of the health law and is much more clearly associated with the economic downturn, as shown in Exhibit 1.