Why we know Obamacare will cost jobs

Posted on August 19, 2013 by


In my last post on ideologues, I chastised those representing the Obama administration for willful ignorance on the evidence of job loss associated with Obamacare (principally lost hours as workers hours are cut to below the 30 hr/week threshold).  While I linked to several anecdotal reports, I did not provide “systematic evidence” of job loss.  So how can I know there is and will be more job loss associated with Obamacare?

We don’t need actual empirical evidence to know a logical truth–my claim that Obamacare costs jobs (ceteris paribus, all else equal) only depends on there being such a science as economics, and one of its fundamental tenets–The Law of Demand.  The law of demand is basic to economics, and is a universal truth derived from three assumptions:  1) we live in a world of scarcity, 2) we apply our scarce resources to our most urgent needs first, and 3) we prefer more utility (benefit or satisfaction) to less.  With these reasonable assumptions we know that demand schedule slopes downward in the typical fashion; for additional quantities of a good to be demanded, the price must ultimately go down.  The opposite is also true; if the price goes up the quantity demanded must fall for the marginal demander–this is the key point for Obamacare.  This is due to the reality that we face diminishing marginal utility in consumption (the more we consume of a good, the less additional benefit we receive).  If you want an example, think how great the first piece of pizza tastes compared to the tenth piece (if you can eat that many!).  So as the benefit of consumption goes down with additional quantity, the price must as well or individuals could improve their welfare by purchasing something else rather than additional quantities of a good whose contribution to utility is falling.

Sorry for the basic econ lesson, but Obamacare costing jobs is a logical consequence of the law of demand–we really don’t need empirical evidence if we believe the law of demand.  Obamacare will raise the cost of labor by some amount (how much remains to be seen), but ANY increase in cost will cause the marginal buyer of labor to demand less.  The marginal buyer is likely that employer that was thinking about expanding jobs but now will wait due to the uncertainty of his labor costs.  We would expect that expanding companies would respond by offering additional part time work, and of course that is what is happening–at least to some degree according to the Federal Reserve’s latest beige book report on economic conditions across the country,

Hiring held steady or increased at a measured pace in most Districts, with some contacts noting reluctance to hire permanent or full-time workers.
Why the reluctance to hire full-time workers?  You tell me…but I think you know of one of the contributing factors.  There is no doubt that Obamacare will cost jobs.  It is, however, an open question (and ultimately an empirical question) of how many jobs will be lost, and then its a social/political question of whether the benefits of Obamacare exceed the costs.  But make no mistake, we know it costs jobs–at least if you believe the law of demand rather than Jay Carney.
UPDATE 21 Aug:  From CNBC today, personnel from staffing agencies state unequivocally the ACA is driving part-time employment.  In the real world of business, no one is questioning this effect, just as anyone familiar with the Law of Demand should not either.
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