CBO Report: Obamacare Denting Labor Force

Posted: Aug 27, 2014 11:26 AM
The Congressional Budget Office is out with its long-term budget and economic projections, updated from their April 2014 report. Not a lot has changed in the intermediate months, but a few aspects of the report stick out.

First, the deficit this year is slightly larger. Slower-than-expected economic growth has lowered the CBO's projections for revenue this year. Second, their long-term deficit projections over the 2015-2024 period has been lowered by $69 billion.

What's interesting is the CBO's analysis of the makeup of the labor force. Over the next ten years, the CBO doesn't project a return to the size of the labor force that we saw pre-2007 recession. In fact, the size of the labor force from 1984-2007 now looks to be a historical outlier:

What the CBo does write, though, is that one of the downward pressures on the labor force is Obamacare. As the report finds:

Over the next few years, CBO expects that the rate of labor force participation will decline about 1/2 percentage point further... the most important of those factors is the ongoing movement of the baby-boom generation into retirement, but federal tax and spending policies will also tend to lower the participation rate. In particular, certain aspects of the Affordable Care Act will tend to reduce labor force participation, with the largest effect stemming from the subsidies that reduce the cost of purchasing health insurance through the exchanges. Because the subsidies decline with rising income (and increase with falling income) and make some people financially better off, they reduce the incentive for some people to work as much as they would without the subsidies.

We won't rehash the debate here over whether or not it's a good thing for the welfare state to provide so much that people will choose not to work - but it's pretty undeniable at this point that ACA is disincentivizing work for Americans in an era where we're wondering if the decline in labor force participation is the new normal.