Wednesday, February 05, 2014

People respond to incentives: American healthcare edition

From the Congressional Budget Office (via Greg Mankiw):

CBO estimates that the ACA [Affordable Care Act] will reduce the total number of hours worked, on net, by about 1.5 percent to 2.0 percent during the period from 2017 to 2024, almost entirely because workers will choose to supply less labor—given the new taxes and other incentives they will face and the financial benefits some will receive.
To which Greg Mankiw adds:
Implicit in this estimate are elasticities that measure how much people respond to incentives. My sense is that CBO is typically conservative when it come to gauging these incentives effects. So I would take their estimate of the impact on hours worked as a lower bound. The actual figure may be higher.

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