A Wall Street Journal profile explains why the recent debate over Obamacare’s implications for the American job market can be traced to the work of University of Chicago economist Casey Mulligan.
Rarely are political tempers so raw over an 11-page appendix to a dense budget projection for the next decade. But then the CBO—Congress’s official fiscal scorekeeper, widely revered by Democrats and Republicans alike as the gold standard of economic analysis—reported that by 2024 the equivalent of 2.5 million Americans who were otherwise willing and able to work before ObamaCare will work less or not at all as a result of ObamaCare.
As the CBO admits, that’s a “substantially larger” and “considerably higher” subtraction to the labor force than the mere 800,000 the budget office estimated in 2010. The overall level of labor will fall by 1.5% to 2% over the decade, the CBO figures.
Mr. Mulligan’s empirical research puts the best estimate of the contraction at 3%. The CBO still has some of the economics wrong, he said in a phone interview Thursday, “but, boy, it’s a lot better to be off by a factor of two than a factor of six.”
The CBO’s intellectual conversion is all the more notable for accepting Mr. Mulligan’s premise, which is that what economists call “implicit marginal tax rates” in ObamaCare make work less financially valuable for lower-income Americans. Because the insurance subsidies are tied to income and phase out as cash wages rise, some people will have the incentive to remain poorer in order to continue capturing higher benefits. Another way of putting it is that taking away benefits has the same effect as a direct tax, so lower-income workers are discouraged from climbing the income ladder by working harder, logging extra hours, taking a promotion or investing in their future earnings through job training or education.
The CBO works in mysterious ways, but its commentary and a footnote suggest that two National Bureau of Economic Research papers Mr. Mulligan published last August were “roughly” the most important drivers of this revision to its model. In short, the CBO has pulled this economist’s arguments and analysis from the fringes to center of the health-care debate.
