May 28, 2015

The Impact of Health Reform on Employment and Work Schedules

The Affordable Care Act (ACA) imposes several types of incentives that will affect work schedules. This paper uses tax measurement methods, policy simulation methods, and sensitivity analysis. The tax measurement methods show that historically large new incentives include (1) an explicit penalty on employers who do not offer coverage to their full-time employees; (2) an implicit tax on full-time employment, stemming from the fact that full-time employees at employers that offer affordable coverage are ineligible to receive subsidies on the law’s new health insurance exchanges; and (3) an implicit tax on earnings, stemming from the provisions of the law that give lower subsidies to those with higher incomes. Simulation methods and sensitivity analysis suggest that the labor market will likely adjust to the various new costs by reducing weekly employment per person by about 3% compared to what they would have been without the law. The tax incentives will push some workers to work more hours per week (for the weeks that they are on a payroll), and others to work fewer. According to the model presented in this paper, the ACA’s incentives and ultimately its behavioral effects will vary substantially across groups, with the elderly experiencing hardly any new incentives and female workers being most likely to cut their work schedules to 29 hours per week.

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