Obama’s Workforce: Discouraged, Disincentivized, Downsized

Obama’s Workforce: Discouraged, Disincentivized, Downsized


Is work becoming optional? In our zeal to alleviate poverty, and to protect our most vulnerable, have we invited Americans to put their feet up and take it easy? That’s how many read the recent CBO report predicting job losses courtesy of Obamacare.

Data on the condition of our long-term unemployed, and the impact of extended unemployment compensation points in the same direction. After five years of disappointing job growth, isn’t it time for the Obama White House to think more critically about why our workforce participation is at a 35-year low? And about why it is that employers continue to lament their inability to fill job openings, even as millions are out of work? Something doesn’t add up.

Related: CBO Future Shock—Economy Will Struggle for 7 Years

Last week the Congressional Budget Office projected that the Byzantine subsidies and other changes embedded in Obamacare would reduce employment by the equivalent of 2.5 million jobs as of 2024. The study did not include employers restricting hiring because of the employer mandate since CBO only scores existing laws. That mandate has now been changed and delayed—twice.

No, CBO concluded that workers who were no longer reliant on their jobs for health insurance would be more likely to quit. CBO had determined early on that the healthcare law would likely have this impact, but their estimate of resultant job attrition has tripled.

The culprit here is taxes, or rather tax subsidies. As income goes up, workers earning between roughly $11,500 and $46,000 receive a declining amount of tax credits to help pay for healthcare insurance. The curve is steep, analogous to a highly progressive income tax; consequently, being rational, workers punished by the sharp subsidy losses will respond by leaving their jobs.

Elsewhere, the debate over extending unemployment compensation raises similar questions. While President Obama has singled out those out of work for more than 27 weeks as a matter of particular national concern, and is pressing Congress to extend benefits again, some think that the unusually long emergency payments have kept people from returning to work. 

Related: Obamacare Will Insure Fewer People, Reduce Workforce--CBO

Research indicates that a disproportionate number of the 3.9 million Americans who have been jobless for 27 weeks or more are over the age of 55, earn more than the average worker and have been reluctant to take a pay-cut to return to the workplace. Losing their unemployment benefits will likely tip many to make that choice.  Economists surveyed by The Wall Street Journal concluded that unemployment would decline to 6.4 percent by June if the benefits were dropped; if the program is again extended, the unemployment rate is expected to be 6.6 percent. 

Isn’t it better to push people back to work?

Democrats think not. They equate the downdraft in federal assistance to a loss of economic stimulus, citing a CBO report suggesting that continuing the emergency payments through 2014 would inject $19 billion into the economy, raising GDP by 0.2 percent. However, the CBO also concludes that some workers “would reduce the intensity of their job search and remain unemployed longer….”

On balance, they consider that impact diluted by the ongoing high unemployment rate. In other words, if the long-term unemployed don’t grab existing jobs, someone else will.  The CBO notes that the positive impact will be temporary, as eventually the higher payouts will increase the federal debt, reducing “the nation’s output and income….”

The idea that cutting off unemployment benefits would force people back to work is not shocking, nor is it an untested hypothesis. Last July, payments to the jobless in North Carolina were terminated. At that time, the unemployment rate was 8.9 percent. By year end, the unemployment rate fell to 6.9 percent, the biggest dip in unemployment in the country. Most impressive, the number of people with jobs in the state rose 1.28 percent. Nationally, employment increased only 0.21 percent during that period

Related: Obamacare Jobs Plan—Tune In, Sign Up, Drop Out

The slide in the workforce participation rate from 66 percent in 2007 to 63 percent today is not a positive for the country; we need more workers supporting Boomers entering retirement, not fewer. Policies should be geared towards pushing people into the workforce, not encouraging them to drop out, as Obamacare does.

The CBO predicts that the labor participation rate will remain low, and that our long-term growth will suffer. They look for growth of only 2.2 percent on average from 2018 to 2024, down from a long-term norm of 3.3 percent. That has implications for the sustainability of the safety net that older Americans in particular will need down the road.

Meanwhile, recent jobs reports make these debates critical. In January we added only 113,000 net new jobs, on top of an even more dismal 79,000 in December. These reports have been brushed off as the result of bad weather, though one of the few strong categories in the January report was weather-sensitive construction, where we added 48,000 more workers. Other factors may be at work.

Economists are expecting job gains to average some 200,000 per month this year, up from 194,000 in 2013, confident that the economic news will brighten in coming months. I hope they are right, but it’s sobering to recognize that the same predictions have been sounded year after year, with disappointment to follow. For years the economy has fed off the growth of emerging markets and China; today all hopes are pinned on the U.S. With the Fed’s cautious tapering causing mayhem in Turkey, Argentina and numerous other countries, Europe still in slow-mode and China beginning to tackle the threat from its shadow banking sector, the U.S. is suddenly the little engine that must.  

Our need to stimulate demand internally therefore is imperative. This is the moment for inspired leadership from the White House. We do not need to extend unemployment benefits, we need to encourage job creation. Tax reform, cutting red tape in a meaningful manner, broadening our earned income tax credit and – yes- approving the Keystone Pipeline, could all add to a sunnier second half.

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