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How the Affordable Care Act Affects Unemployment

Unemployment will likely rise as a result of the Patient Protection and Affordable Care Act of 2010, according to an analysis by Diana Furchtgott-Roth, senior fellow, at The Manhattan Institute. The mandated $2,000 tax per worker in the new law, effective 2014 and levied on employers who do not provide health insurance will discourage new …

Unemployment will likely rise as a result of the Patient Protection and Affordable Care Act of 2010, according to an analysis by Diana Furchtgott-Roth, senior fellow, at The Manhattan Institute. The mandated $2,000 tax per worker in the new law, effective 2014 and levied on employers who do not provide health insurance will discourage new hiring, particularly workers with low skills. Companies with 50 or more empoyees will be required to offer a health insurance package, with no lifetime caps and no copayments for routine visits, or pay an annual penalty of $2,000 for each full time worker. Moving from 49 to 50 workers will cost a firm $40,000 a year.

Seeing these penalties coming, observes Furchtgott-Roth, companies are adjusting their workforces accordingly. Price-scanning machines, call-centers and other technologies are just one element of substituting technology forlabor. When the new mandates are phased in 2014, many businesses will be motivated to reduce the number of locations and move the number of workers from full-time to part-time status. This will inhibit employment and reduce the nation’s economic growth. Leisure, hospitality and restaurants will be particularly affected. Many of these employers do not offer health insurance to all of their employees, whose cost of hiring will increase significantly. Part-time workers are not subject to the $2,000 penalty (tax). Hence, there will likely be fewer opportunities available for full time work.

Even though the current level of unemployment at 8.3 percent is high the healthcare law hides a broader employment problem. Many workers have left the labor force because they have not been able to find jobs. The labor force participation rate has declined from 66 percent in January 2009 to 64.9 percent in March 2012—a rate that is equal to the early 1980s.

In the chart below the disincentives for the growth of hiring are outlined.

Read: How Obamacare Increases Unemployment
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Watch: Small Business Owner Fears Obamacare’s Impact on Jobs and Economy

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