Home > Obamacare, Taxation > Obamacare Taxes and Labor Markets

Obamacare Taxes and Labor Markets

Now that the election is over, the country continues to have divided government with the Republicans controlling the House and Democrats retaining control of the Senate and the Presidency.  As a result, Obamacare will not be repealed so the tax and spending effects of Obamacare will take effect beginning in 2013. One tax imposed by Obamacare is on medical device manufacturers.

Obamacare imposes a 2.3 percent tax on gross sales by these firms. This is a very simple tax to analyze using basic economics tools. The tax reduces the return to using labor in production since the government now takes a fraction of these returns. An optimizing or profit-seeking firm will use less of an input in production whose return has declined and so economic theory predicts a decline in the demand for labor. That means less labor used in production and thus there will be layoffs in the medical device industry. There is now accumulating evidence that these layoffs have already occurred, with more to come.

Freedom Works has compiled a list of firms that have announced layoffs as a result of this new tax. It appears that thousands of workers will lose their jobs and the article also points out the possibility that many firms will reduce their full-time employees, converting many to part-time status so as to avoid having to pay for health insurance.

In this blog, I plan to keep track of the additional economic wreckage caused by Obamacare in the future.

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  1. November 13, 2012 at 4:13 AM

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  2. Jason Reed
    November 13, 2012 at 12:21 PM

    Do you believe that this result will be robust to increases in the demand for medical care? Is it possible that the increase in the insured will increase the demand for medical care and in turn increase the demand for medical devices and effectively negate the effects of the tax?

  3. RJR
    November 13, 2012 at 1:28 PM

    It depends on the degree of price and quantity controls that are imposed. If Massachusetts is any guide, there will be both and then there may not be much of an offset.

  4. November 14, 2012 at 6:29 PM

    Currently it looks like Drupal is the preferred blogging platform out there right now. (from what I’ve read) Is that what you are using on your blog?

    • November 20, 2012 at 11:43 AM

      I am using WordPress to host my site.

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Economics One

A blog by John B. Taylor

The Grumpy Economist

One economist's views on economic policy.

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