Study: ObamaCare will lower wages, especially among poor
posted at 2:15 pm on August 7, 2009 by Ed Morrissey
A new study by Steven Nyce and Sylvester Schieber for think tank Watson-Wyatt on the long-term effects of Barack Obama’s health-care reform plan shows explosively bad results that mainly impact lower-income workers. The Watson-Wyatt study uses five scenarios using differing versions of ObamaCare floating around Capitol Hill to determine the impact of nationalizing the health-care industry on real compensation to workers. The lack of real cost controls will force a regressive impact on compensation and worsen the very problem the Obama administration proposes to resolve (emphases mine):
Under an assumption that we control health cost inflation but expand coverage by means of an employer play-or-pay mandate, the effect on wage growth patterns would be negative at the bottom of the earnings distribution and mildly negative in the middle of the earnings distribution for a while. But after 2015, wage growth rates would return to the healthier levels of the 1990s. Bringing health costs under control allows more resources for expanded coverage.
If we expanded health insurance coverage but our current health cost inflation rate continued unabated, the higher overall costs would result in falling wages at the bottom of the earnings spectrum and very slow wage growth on up the earnings distribution. These dismal wage outcomes would persist over at least the next couple of decades, possibly longer.
The next scenario considers the real possibility that health inflation increases as a result of expanded insurance coverage offered under reform. Looking back at the implementation of Medicare, this is exactly what happened. This scenario combines expanded health care coverage with accelerated health inflation rates. In this case, the higher costs would drive disposable wages downward across most of the earnings spectrum, although the declines would be steepest for lower-earning workers. These depressed conditions would persist over the entire projection period.
The Medicare example is particularly instructive. Instead of reducing consumption, Medicare increased consumption while limiting resources. Any Econ 101 student could have predicted that increasing consumption while limiting resources would result in higher prices, as well as eventual rationing.
Moreover, the emphasis on fixing the health-care system through top-down employer mandates from government will mean fewer jobs as businesses absorb more costs. If employers cut back on staff in order to keep costs in line, that puts more people in the labor pool competing for fewer jobs at almost all strata of employment. On lower-skilled jobs, the competition will become more fierce, which will drive down wages. Again, this is pretty much Econ 101.
Keith Hennessey looks at the same study and expands on its analysis:
Let’s put this into sentence form:
- If health care reform finances universal coverage primarily through a mandate to buy health insurance, and if health cost growth continues as it has in recent years, a median worker’s real wage growth rate would be more than cut in half.
- If health care reform instead accelerates health cost growth because expanded insurance coverage means more health services are consumed, that same median worker would see his real wages shrink.
- For lower-wage workers the picture is worse. If health care reform finances universal coverage primarily through a mandate to buy health insurance, and if health cost growth continues as it has in recent years, a worker in the 3rd income decile would see no real wage growth.
- And if health care reform instead accelerates health cost growth because expanded insurance coverage means more health services are consumed, that same low-wage worker would see his real wages shrink dramatically.
In other words, it will make workers poorer, and poorer workers even more poor. Read all of Hennessey’s post and the study to see what a disaster ObamaCare will be for the very people it purports to protect.