Voodoo employment economics threatens health care reform

Is Obamacare a health reform, however misconceived, or a jobs program?

As congressional Republicans embark on their promise to repeal and replace President Obama’s signature Affordable Care Act, they are being overwhelmed by claims that imply it’s a jobs program.  Scholars affiliated with the Milken Institute School of Public Health at George Washington University estimate Obamacare repeal would kill 2.6 million jobs by 2019.  Almost a million jobs would be lost from health services, while the balance would be lost in construction, real estate, retail, finance, and insurance.

Unfortunately, such research relies on the so-called “multiplier effect,” a politically seductive but misleading type of voodoo economics.  It goes like this: Obamacare throws money at hospitals, doctors’ offices, and other health services.  Those recipients build new facilities and hire more workers, who spend their paychecks in their communities.  It is the same kind of research that developers seeking taxpayer-subsidized stadiums commission – and it is meaningless.

If Congress just sent a fleet of helicopters to scatter banknotes from the sky, the same “multiplier effect” would take place: people would pick the money up and spend it.  Businesses located near the drop zones would profit, hire, and expand.  However, jobs and the economy would not grow, because the effect would be a mix of inflation and reduced spending in areas away from the drop zones.

Worse, because this type of spending is politically motivated, it is usually demanded by industries which resist productivity improvements.  Last July, Dr. Bob Kocher, a venture capitalist who served as a special assistant to Obama when Obamacare was crafted, lamented that just over half of health service workers are administrators, up from just over one third before Obamacare.

Further, health services do not need Obamacare to add jobs.  The sector is recession-proof.  Nonfarm civilian employment peaked in January 2008 (at 138.4 million jobs) and bottomed out in February 2010 (at 129.7 million jobs).  Jobs were lost in 24 of those 25 months.  Nonfarm civilian employment did not cross the January 2008 threshold until May 2014.  And that recovery was not smooth: from June through September 2010, 289,000 jobs were lost in a jobs mini-bust.

However, there was no recession in health services.  Indeed, over half a million such jobs were added between January 2008 and February 2010.  In other words, health services added jobs while the Great Recession destroyed 9.25 million other nonfarm civilian jobs before the Affordable Care Act was passed in March 2010.

But Obamacare has skewed the American workforce toward health services.  This persists now that the economy has recovered.  By December 2016, the United States had added 6.87 million jobs to the previous peak in January 2008.  However, 2.59 million jobs are in health services, which grew by 20 percent.  All other nonfarm jobs grew only 3.42 percent, adding 4.29 million jobs.  Health services accounted for 38 percent of all jobs added from the January 2008 peak through the end of last year.  And this counts only private health services, not insurers and other middlemen or government employees added by Obamacare.

Republican politicians need to accept the fact that some industries can have too many workers and that health services is surely one of them.

Workers and businesses outside health care are paying the price for Obamacare with sluggish job and wage growth.  Health reform that focuses on patients’ needs, not preserving health service jobs fattened by Obamacare, will also help the rest of the economy.

John R. Graham is a senior fellow at Independent Institute (Independent.org) and a senior fellow at the National Center for Policy Analysis.

Is Obamacare a health reform, however misconceived, or a jobs program?

As congressional Republicans embark on their promise to repeal and replace President Obama’s signature Affordable Care Act, they are being overwhelmed by claims that imply it’s a jobs program.  Scholars affiliated with the Milken Institute School of Public Health at George Washington University estimate Obamacare repeal would kill 2.6 million jobs by 2019.  Almost a million jobs would be lost from health services, while the balance would be lost in construction, real estate, retail, finance, and insurance.

Unfortunately, such research relies on the so-called “multiplier effect,” a politically seductive but misleading type of voodoo economics.  It goes like this: Obamacare throws money at hospitals, doctors’ offices, and other health services.  Those recipients build new facilities and hire more workers, who spend their paychecks in their communities.  It is the same kind of research that developers seeking taxpayer-subsidized stadiums commission – and it is meaningless.

If Congress just sent a fleet of helicopters to scatter banknotes from the sky, the same “multiplier effect” would take place: people would pick the money up and spend it.  Businesses located near the drop zones would profit, hire, and expand.  However, jobs and the economy would not grow, because the effect would be a mix of inflation and reduced spending in areas away from the drop zones.

Worse, because this type of spending is politically motivated, it is usually demanded by industries which resist productivity improvements.  Last July, Dr. Bob Kocher, a venture capitalist who served as a special assistant to Obama when Obamacare was crafted, lamented that just over half of health service workers are administrators, up from just over one third before Obamacare.

Further, health services do not need Obamacare to add jobs.  The sector is recession-proof.  Nonfarm civilian employment peaked in January 2008 (at 138.4 million jobs) and bottomed out in February 2010 (at 129.7 million jobs).  Jobs were lost in 24 of those 25 months.  Nonfarm civilian employment did not cross the January 2008 threshold until May 2014.  And that recovery was not smooth: from June through September 2010, 289,000 jobs were lost in a jobs mini-bust.

However, there was no recession in health services.  Indeed, over half a million such jobs were added between January 2008 and February 2010.  In other words, health services added jobs while the Great Recession destroyed 9.25 million other nonfarm civilian jobs before the Affordable Care Act was passed in March 2010.

But Obamacare has skewed the American workforce toward health services.  This persists now that the economy has recovered.  By December 2016, the United States had added 6.87 million jobs to the previous peak in January 2008.  However, 2.59 million jobs are in health services, which grew by 20 percent.  All other nonfarm jobs grew only 3.42 percent, adding 4.29 million jobs.  Health services accounted for 38 percent of all jobs added from the January 2008 peak through the end of last year.  And this counts only private health services, not insurers and other middlemen or government employees added by Obamacare.

Republican politicians need to accept the fact that some industries can have too many workers and that health services is surely one of them.

Workers and businesses outside health care are paying the price for Obamacare with sluggish job and wage growth.  Health reform that focuses on patients’ needs, not preserving health service jobs fattened by Obamacare, will also help the rest of the economy.

John R. Graham is a senior fellow at Independent Institute (Independent.org) and a senior fellow at the National Center for Policy Analysis.

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