Bohanon: When Government Kills Jobs

March 17, 2014

by Cecil Bohanon, Ph.D.

Alice’s Restaurant in Hometown, Ind., makes the best pancakes and tenderloins this side of heaven. It also employs 150 workers; some full-time, some part-time. Suppose Alice, for whatever reason, announces she is going to let go an equivalent of two full-time workers. The sacking could take a number of forms: She could let two full-timers go, she could let four part-time workers go, she could reduce four full-timers to part-time . . . you get the picture.

Now let us change the story slightly: In this case, suppose an equivalent of two full-time workers give notice they are leaving. Again, this can take a couple of forms: two full-timers quit, or four full-timers are reduced to part-timers.

In either case — whether Alice fires or workers quit — the number of hours worked at Alice’s Restaurant goes down by the same amount. To the economist-as-social-scientist whose job it is to keep track of what happens to hours worked, it is irrelevant whether the reduction in labor supply is a result of firing or quitting. In either case, the equivalent of two full-time workers don’t work.

The brouhaha about the Congressional Budget Office (CBO) recent report on the employment impact of the Affordable Care Act (ACA) must be seen in this light. The ACA gives workers incentives to quit their jobs and/or reduce their hours. This is because it reduces health-insurance costs for many workers through a combination of mandates and subsidies.

The CBO did what appears to be an honest assessment of the impact of those provisions. The result is not surprising: It estimates an equivalent of about 2 million full-time workers will not be working in 2020 because of the ACA provisions. Given a labor force of 150 million, this is about a 1.3 percent reduction in labor supply.

Is this a good or bad result? The CBO, quite wisely in my opinion, did not offer an opinion. They refused to take the role of economist-as-social-philosopher. I, however unwisely, have no such scruples. I think the ACA-induced labor-supply reductions are a bad thing.

This is not so much because it makes national output less than what it would otherwise be. As a classical liberal, I’m fine with anyone’s work-leisure decision. Every man and woman has a right to his or her own labor effort. However, they are also responsible for their own expenses — including their health-insurance expenses. To me, that’s what freedom is: choice and responsibility.

My progressive friends seem to have another idea of freedom: the ability to do as one pleases and the responsibility of “society” to enable such actions. But that is license, not freedom. I think such a notion of freedom promotes irresponsibility, not prudence. And make no mistake, the ACA coerces taxpayers to pick up part of the tab of the health insurance for those who choose to reduce their work hours.

I do not blame those who cut back the work-hours because of the ACA — they are simply responding to incentives. (Indeed, I may join them and sign up for ACA coverage if I retire before I am Medicare eligible.) But I think the ACA is misguided because it seduces otherwise competent and autonomous individuals to be wards of the state. I agree with Democrat President Grover Cleveland who said that “it is not the job of the government to take care of the people.”

The ACA is yet another policy that expands government power, perverts individual freedom and responsibility and fundamentally changes the character of America.

Cecil Bohanon, Ph.D., an adjunct scholar with the Indiana Policy Review Foundation, is a professor of economics at Ball State University.



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