Fed Survey: Obamacare Impedes Hiring, Curbs Wage Gains

Although Chair Yellen is still mum on the topic, Federal Reserve economists have belatedly started to study the impact of Obamacare on employment and wages. Economists in three regions (San Francisco, Philadelphia, New York) used identical questions to survey employers in the manufacturing sector. Results for all six questions were negative for full-time employment and wage increases. Here are the average responses, across the three regions, for the six questions:

  • Effect of Obamacare on number of workers you employ: 22% said fewer workers employed, just 3% said more workers.
  • Percent of your workers that are part-time or temporary: 4% said fewer workers would be part-time, 18% said more workers would be part-time.
  • Amount of work outsourced to other firms: 3% said less work would be outsourced, 17% said more work would be outsourced.
  • Wage and salary compensation per worker: 19% said the ACA would lead to lower wages, 14% said it would lead to higher compensation.
  • Effect of ACA on “other benefits, including retirement:” 20% said the ACA would reduce other benefits, just 3% said it would increase other benefits.
  • Effect of ACA on prices you charge customers: 20% said they would raise prices, only 3% said they would cut prices.

The bad news is that these results prove what common sense would suggest: The ACA is undermining the traditional employer-employee relationship, where workers get a full-time job and wages rise over time. As Chair Yellen noted at Jackson Hole, part-time employment has surged. This is a disaster for low-skilled workers entering the workforce, who need to work two jobs to get a full weekly pay-check.

More bad news: these results would be even worse if the Fed had surveyed service firms rather than manufacturing firms. Wages are higher in manufacturing because productivity per worker is much higher than in services, partly because capital investment per worker is higher. For example, the 11.8 million people in “food preparation and serving related occupations” had an average hourly wage of $10.38 in 2013, versus $16.79 for the 8.8 million people in “production occupations.” Therefore, the added costs from Obamacare are a lower percentage of wages for manufacturing firms than service firms.


Social: Obamacare makes it even harder for low-skilled workers to get a foothold in the labor market. Thanks to the ACA, hundreds of thousands of young, able-bodied Americans will have lavish health plans they don’t need, but no job.

Economic:   To the extent it retards employment growth Obamacare slows economic growth, which makes it harder to fund Social Security, Medicare, etc.

Political:  Republicans should be the optimistic party of growth and opportunity—not the anti-Obama party. Obama is old news, damaged goods. Because the ACA has been a social and economic disaster—particularly for poor people and middle class entrepreneurs –repealing and replacing it should be a top priority of the GOP.

Equity Investment:  Obamacare increases consumption of healthcare at the expense of other products. It is no coincidence that in Q2 2014 the healthcare sector had by far the best earnings and revenue growth. Because the ACA hinders hiring and wage gains, consumer-oriented industries, such as retailers, packaged foods, restaurants, and household products are struggling. (To be sure, there are other factors at work, such as the impact of Amazon, firms’ exposure to Europe, and consumers shopping at auto showrooms rather than malls.) By increasing labor costs the ACA also increases demand for labor-saving capital equipment, particularly in the service sector.

Copyright Thomas Doerflinger 2014. All Rights Reserved.


About tomdoerflinger

Thomas Doerflinger, PhD is a prominent observer of American capitalism – past, present and future. http://www.wallstreetandkstreet.com/?page_id=8
This entry was posted in Uncategorized and tagged , , , . Bookmark the permalink.

Comments are closed.