Who Pays For An Employer Mandate?

Moneybox
A blog about business and economics.
July 3 2013 11:13 AM

Who Pays For An Employer Mandate?

The employer responsibility fee issue in the Affordable Care Act raises the more general question of where the real incidence of employer mandates lies. The ACA version of this is structured in a slightly odd way, but the general concept of either mandatory employer-provided benefits or else pay-or-play schemes is fairly widely in use. Most economists' rule of thumb about this would be that in a competitive marketplace, the incidence of such mandates ultimately falls on workers. A firm is going to think of the total cost of hiring someone (including the cost of payroll taxes and mandatory benefits) versus the economic value of an additional employee, and so cash wages will be reduced to cover the extra cost.

But the real world is fairly complicated, so when Carrie H. Colla, William H. Dow, and Arindrajit Dube studied a 2008 San Francisco ordinance that required employers to either provide health benefits or else pay into a public health fund they found almost no labor market impact. Instead, the incidence fell approximately 50 percent on San Francisco consumers and about half on business owners.

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Taking a broader view, however, a 1991 study by Jonathan Gruber and Alan Krueger looked at workers' compensation mandates and found that "employers' costs of workers' compensation insurance are largely shifted to employees in the form of lower wages."

I think it's fairly easy to reconcile these two pieces of empirical research as saying that in the short-term the incidence falls on employers but in the longer-term employers succeed in shifting it back onto employees. That thought, plus the fact that Gruber & Krueger are both familiar faces in the Obama administration, is what made me confident back in 2010 that the kinks would all get worked out before any harm was done. Now I'm more worried that we're going to get stuck in a kind of dead zone around this where we don't even make minor fixes to things like the 50 employee cliff or changing it to be 50 full-time equivalent employees rather than 50 full-timers. Part of the upshot of conflict empirical research findings, after all, is that the specifics of program design may matter a great deal.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.