Congress has done no favors for Nevada's worst-in-the-nation unemployment rate.
While the Silver State's unemployment rate lingers above 14 percent, Congress's massive overhaul of the health care industry — as embodied in the Patient Protection and Affordable Care Act (PPACA) — promises to only exacerbate this figure as the bill's key provisions begin to take effect over the next few years.
PPACA, popularly known as Obamacare, will negatively impact both the demand and supply sides of the labor market, in each case driving up unemployment rates. The new penalties and regulations that it will impose against private firms will add significantly to those firms' labor costs, raising the incentive to substitute capital for labor and lowering the demand for labor.
Private employers will be assessed with new tax penalties unless they provide employees with health insurance coverage that the federal government considers "affordable" and which provides "minimum value." PPACA statutorily defines these terms to mean that (a) an employee's contribution to self-only coverage cannot exceed 9.5 percent of household income and (b) that the plan pays at least 60 percent, on average, of covered health care expenses.
If employer-provided plans fail to meet these standards, or if employers do not provide coverage, their employees would likely become eligible to receive premium subsidies to purchase medical coverage on the health care exchanges. At that point, employers would be assessed an annual tax penalty of $2,000 for every employee receiving premium subsidies.
There is, however, an exemption for firms with fewer than 50 full time-equivalent (FTE) employees (employees working 30 or more hours per week). While this exemption is intended to offer a break to small businesses, it will drastically distort the incentives these firms face. At the moment a small business hires its fifty-first FTE, it could instantly be assessed a tax penalty of as much as $42,000, under the PPACA formula, as it would then immediately become liable for a full slate of tax penalties on its previous staff. This would implicitly amount to an extremely high marginal tax rate on any firm that might contemplate growing beyond 50 full-time employees.
In addition, PPACA creates a disincentive to work. Under PPACA, the unemployed and underemployed will receive guaranteed health coverage, increasing the value of leisure and lowering the quantity of labor that workers will choose to supply. By diminishing the relative compensation gained by working, it amounts to a high implicit marginal tax rate on workers at the lower-end of the income scale. According to an analysis by the Cato Institute's Michael Cannon, PPACA's implicit marginal tax rates on low-wage workers (those earning up to 400 percent of the federal poverty line) will average between 53 and 62 percent — an obvious disincentive to work.
Taken together, these effects are estimated to reduce employment significantly over the next few years. David Tuerck of the Beacon Hill Institute, a nonprofit econometric modeling service, estimates that PPACA will lead to the elimination of as many as 700,000 jobs nationwide. An econometric analysis by the Heritage Foundation puts the number at 670,000.
Yet, perhaps the most damning estimate comes from the nonpartisan Congressional Budget Office, which estimates that as many as 788,000 jobs will be lost nationwide as a direct result of PPACA. CBO Director Doug Elmendorf has also said that PPACA would permanently increase the national unemployment rate by a half percent. It is notable that this permanent increase in the unemployment rate will have been imposed artificially and intentionally.
According to employment figures maintained by the US Department of Labor, 0.85 percent of all jobs nationwide are located in the Silver State. If one assumes that PPACA's impact on the Nevada labor market is proportional to its impact on the rest of the country, PPACA will destroy nearly 6,700 Nevada jobs, using the CBO's estimate. What's more, the majority of this job loss would occur among workers at the lower end of the income scale — those who can least afford it.
Geoffrey Lawrence is a fiscal policy analyst at the Nevada Policy Research Institute. For more information visit http://npri.org.