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How Obamacare will shrink the workforce

That (other) Marketplace will affect labor force participation.

The Congressional Budget Office (CBO) released its 2014-2024 budget and economic outlook this morning. It is a forecast of what the economy will look like over the next decade. The headline? The economy is growing and the deficit is shrinking – for now, at least. 

The non-partisan CBO also looked at what effects the Affordable Care Act – Obamacare – will have on the deficit and the labor market. The headline here? The equivalent of 2 million or so fewer full-time workers. 

According to the analysis, some Americans will choose to scale back how much they work. Thanks to Obamacare, they will decide to go part-time. One reason: As your income goes down, the help you can get from the government goes up.

Katherine Baicker, a professor of health economics at Harvard University, puts it another way: "If your subsidy for purchasing health insurance goes down as your income rises, that provides some disincentive to have higher income."

So, it could be advantageous for an individual to work a job that pays less than four times the federal poverty level, which works out to about $46,000 a year.

"That’s not a wealthy person, but it covers a bigger share of the distribution of people than you might think, if you were just thinking about poor people," Baicker says.

We’re talking about tens of millions of Americans.

Some will work less, knowing they can get health insurance through government-run exchanges. Others will stop working altogether. Two million fewer full-time workers by 2017 sounds bad. Is it?

"Yeah, I mean, I hate to be an economist for you, but this is sort of an 'on the one hand, on the other hand' kind of answer," says Craig Garthwaite, an assistant professor of management and strategy at Northwestern University’s Kellogg School of Management, and co-author of a paper called “Public Health Insurance, Labor Supply, and Employment Lock.”

One the one hand, “we want people to participate in the labor force,” he says. On the other hand, he says, Americans will be able to pick jobs that are good fits without having to worry about losing their health insurance.

And some older Americans will be able to retire sooner – namely, people in their sixties who would have had a hard time finding affordable coverage on their own, says Jonathan Gruber, an economist at MIT who helped write the Affordable Care Act.

"These are people who were sort of chained to their desks by the failures in the individual insurance market," Gruber says.

The CBO says its predictions are subject to "substantial uncertainty." That comes with the territory given all the uncertainty about how implantation of the Affordable Care Act will play out.

About the author

David Gura is a reporter for Marketplace, based in the Washington, D.C. bureau.

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