The Affordable Care Act and the Labor Market: A First Look

NCPA, October 16, 2015

A recent study examined the effects of the Affordable Care Act (ACA) on the labor market by comparing places that were expected to be affected by the ACA substantially (with a large percentage of uninsured before the law) with places that the ACA was expected to affect less.

Supporters of the ACA claimed that by limiting the extent of adverse selection in the nongroup market, the ACA would stop seeking jobs that offer health insurance but that don't have a comparative advantage for them and thus, make labor markets more efficient.

Opponents of the law argued that the structure of the insurance subsidies envisioned by the law created disincentives to work and that the mandate on medium-sized employers to provide insurance to full-time workers encourages the substitution by part-time workers.

The study found that:

• More exposed states and counties have experienced a rise in employment, salaries and output relative to less exposed areas with the implementation or the enactment of the ACA.
• However, in spite of not having an adverse effect on labor markets, major parts of the ACA, such as the employer mandate and the tax on high-premium plans still have to come into force.

While it is encouraging to find that the ACA does not appear to have substantially slowed the economic recovery or hurt it in its first year of implementation, its long-run impact on the U.S. economy remains to be seen.

Source: Maxim Pinkovskiy, "The Affordable Care Act and the Labor Market: A First Look," Federal Reserve Bank of New York, October 2015.

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pg 13: Column 5 presents results for state-level fraction of employees working part-time as measured by the CPS. The trend break estimate is negative, suggesting that high-uninsurance states experienced a smaller increase in the fraction part-time than did low-uninsurance states. However, the estimate is statistically insignificant, and is consistent with as much as a 0.5 to 1 percentage point increase in the part-time fraction in high-uninsurance states relative to low-uninsurance states. This increase would be somewhat below the increase in the fraction employed part-time in Hawaii after it passed its employer mandate in 1972, which was about 1.4 percentage points (Buchmueller et. al. 2011), and so, would be within the range of prior estimates in the literature. Columns 6 and 7 present results for the behavior of employer-based insurance premiums. I observe that average premiums grew less in high-uninsurance states than in low-uninsurance states after 2010 relative to their previous trend.

LINK: Buchmueller, Thomas C., John DiNardo, and Robert G. Valletta. 2011. "The Effect of an Employer Health Insurance Mandate on Health Insurance Coverage and the Demand for Labor: Evidence from Hawaii." American Economic Journal: Economic Policy, 3(4): 25-51