Does Romneycare Tell US About What The New CBO Report Means For Employment?

Maybe, but not necessarily.

So, we have just had one of the worst outbreaks of misreporting of a careful study, followed up by a whole new political propaganda meme that we shall certainly hear at least through the fall election.  "Obamacare will cost 2.5 million jobs!"  Oh gag.  So, sure, most economists and at least some commentators caught that this was about labor supply rather than the far more unpleasant labor demand side of things.  Nevertheless, some economists and others have continued to argue that the labor supply side of things is still a big deal, a problem that we should all be shaking in our shoes about, indeed, yet again meaning we should be rushing out to repeal this awful socialist horror.

Prominent in this is a Wall Street Journal column yesterday by Joseph Rago, who praises the labor supply studies of Casey Mulligan, long one of the advocates of the "recession is due to lazy workers" meme [sorry, failed to make link work].  Rago has him "exposing Obamare" along with denunciations of both David Cutler and David Gruber for supposedly telling everybody pollyanna stories about jobs and Obamacare.  Shame on them!  They are now supposed to go hide their heads under covers and never comment anywhere ever again on this, now that Mulligan has shown them up.  Indeed, he estimates that the labor supply effects will be twice what the CBO says, those latter economists just too wimpy to face the Awful Facts.

However, even if these labor supply effects are as strong as claimed, whether by CBO or Mulligan, for quite some time to come there is little doubt that the employment problem we face is one of insufficient labor demand.  To the extent workers not fearing loss of health care cut back their labor supply, there will be plenty of unemployed ones willing to step forward to replace them.  Maybe there is a longer run problem of less potential output in the future, although personally I suspect that the reduction in capital investment we have been experiencing will reduce that future potential more than any reduction in labor supply due to these changed incentives related to health care availability.

Indeed, as Gruber and others have argued, I think that it is useful to look at what has happened in Massachusetts since Romneycare was adopted in 2006.  While a 2011 study from Suffolk University claimed there would be job losses due to higher health insurance costs, the experience there has simply not supported fears of impediments to job creation.  TalkingPointsMemo reported on an Urban Institute study that found MA job growth reasonably comparable to that of selected states and national averages [OK, another failed effort to link there, sorry].  Last year it was in line with national averages and greater than in any state northeast of Pennsylvania.  One can argue that MA has special advantages due to its high levels of human capital and excellent universities, but job creation simply has done very well and looks to continue to do so, eight years out from adopting Romneycare.

Now there are some complications here that must be noted when looking at Romneycare in comparison with ACA.  While I do not think this explains much because what is going on with observed employment is much more demand-side than supply-side determined, Mulligan has claimed as of last August that Romneycare has substantially fewer supply-side disincentives than ACA.  Maybe, but again, not a big deal, at least not anytime soon. 

The other matter actually tilts in the favor of ACA.  As noted in regard to the Suffolk U. study, the biggest criticism of Romneycare, also reflected in public polling, has been its failure to hold down insurance costs, despite it being in general popular.  However, on this matter, Jonathan Chait notes that it had no mechanisms that made any effort to hold down costs, whereas ACA does have such mechanisms, and whether or not the apparent bending down of the cost curve we have been seeing nationally is due to it or other factors, we seem to be seeing a different outcome than in MA.  Indeed, one of the less noted points in the CBO study is that it appears that the average premium on the new exchanges is coming in at 15% less than what was projected a few months ago, although obviously not all the data is in on that front.  Nevertheless, the main lesson from Massachusetts is that probably Cutler and Gruber are more right than Mulligan or the misdirecting headline screamers about the jobs impact of ACA.

Glad I managed to make one link work.  Sorry somehow not to get others to do so.

Barkley Rosser