On the same day that the Congressional Budget Office published its Budget and Economic Outlook: 2014 to 2024 report, I was sitting at lunch with a colleague about 10 years my senior. We also chatted a bit with another colleague roughly his age peer.
Much of the conversation was about retirement.
People retire for a variety of reasons. Some are compelled to do so by mandatory retirement ages. Some are compelled to do so by failing health or reduced capacity to meet their employment obligations. Some opt to retire because it gives them freedom, either from the routine of work in general or from a particular routine of work. Some, indeed, begin whole new careers upon retirement, including many of our first responders.
Retirement, if it does not involve the substitution of one full-time career for another, can be described as a decision to supply less labor. That’s an odd-sounding phrase to most ears, but it’s the language economists use to describe choices individuals make to work less, for whatever reason. When a parent decides to quit work, or to take extended leave, or to shift from full-time to part-time employment, in order to be with his or her children, that’s a decision to supply less labor. When an adult child makes the same decision to care for an ailing parent, that’s a decision to supply less labor, too.
So is the choice to work less so one can sleep more, or play video games more, or annoy the neighbors more.
It’s all about the supply of labor, and how much labor individuals choose to supply.
And none of this conversation is about the demand for labor . . . that is, how many employers are offering how many positions at how many hours a week.
Understanding the difference between supply and demand is critical to understanding how policies affect employment.
Take unemployment compensation. There is research that supports the argument that unemployment compensation may diminish the motivation to seek work . . . or, at least in the case of the particular systematic review I read, the imminent threat of loss of benefits seems clearly to increase “exits” from unemployment into employment.
So unemployment compensation, because it provides a cushion for the loss of income, may prompt at least some to supply less labor, at least for a period of time.
The Congressional Budget Office’s most recent Outlook has generated a lot of headlines because of its finding that the Affordable Care Act will have a much larger impact on employment levels than previously estimated: roughly 2.3 million full-time equivalent workers will be lost, the CBO estimates, in the next decade.
But the cause of the vast majority of that “loss,” according to the CBO, isn’t likely to be businesses reducing the number of their employees or reducing employee hours either to avoid the penalties for not providing health insurance or to reduce and absorb the costs of those penalties. That has been the dominant attack on the ACA as a “job killer,” but the CBO says it’s not that big a deal.
A bigger deal: in various rather complex ways, the Affordable Care Act, like unemployment compensation, will create incentives for at least some workers to supply less labor. In other words, the CBO expects that it will be the workers, not the employers, who choose to reduce the level of employment.
Some workers will stop working because they no longer have to work in order to have health insurance (and insurance was the primary reason for working). Some will reduce their hours for the same reason, and in order to drop below or stay below the various thresholds of eligibility, whether for Medicaid or for certain levels of subsidy for a health plan purchased on an exchange.
What sort of workers are these? Mostly low-wage workers, based on the CBO’s analysis.
What sort of things will they do with their time?
All the things I listed above, and more I haven’t imagined.
So . . . is this economic impact of the ACA a good thing or a bad thing?
The answer may lie, in large part, on one’s view of the value of paid work . . . and whether or not there are other values (like caregiving) of equal or greater merit.