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ObamaCare Does Cut Employee Workweeks

Have employers cut work hours to avoid ObamaCare penalties? There's no clearer test than the one put forth by the White House Council of Economic Advisers.

The Affordable Care Act employer mandate applies to workers who clock at least 30 hours per week. So if companies were seeking to minimize liability, we'd likely see a drop in the number of workers with hours just above that threshold relative to the number with hours just below it.

The White House test, as amended in early 2014: "Compute the ratio of persons working 31-34 hours per week to persons working 25-29 hours per week.

30-Hour Dividing Line

The results, seen in the accompanying chart, are striking. After leveling off for a couple of years as the economy recovered from recession, the ratio began a sharp and sudden dive in 2013. In June of this year, there were 191,000 fewer workers with usual work schedules of 31 to 34 hours in their main jobs than at the end of 2012, a drop of 8%. Meanwhile, an additional 406,000 people usually worked 25 to 29 hours, up 12%. These figures average 12 months of data because the U.S. Census' Current Population Survey (CPS) data are volatile from month to month.

The divergent shifts on either side of the 30-hour divide coincide almost perfectly with the initial measurement period for ObamaCare employer penalties that began in 2013. Potential liability is determined a year before the penalties are actually imposed, so employers began responding in a pretty big way in early 2013.

While the data show that the shift away from a 31- to 34-hour workweek became obvious in the final quarter of 2013, the data are consistent with employers adjusting work hours months earlier. That's not only because it takes some time for employers to implement such changes but also because census interviewers ask people to give their most frequent schedule over the past four or five months.

The timing also matches the surge in anecdotal reports of employers cutting work hours, which IBD collected in a database that grew to 450 employers.

The timing also matches up well with the relapse in the average workweek in low-wage industries. That's evident in the other chart based on Bureau of Labor Statistics data from the monthly establishment survey.

As noted above, the White House economists tweaked their test of ObamaCare's impact. Initially, they had counted the 5 million or so people reported by the census to be working exactly 30 hours a week as full-time under ObamaCare. Once IBD brought it to their attention that the census rounds up, counting 30 minutes or more as a full hour, the White House acknowledged that including those workers "may be misleading.

New Studies Claim No ObamaCare Jobs Impact

That rounding problem is all the reason needed to dismiss one of three new studies casting doubt on ObamaCare's impact on work hours. The authors of an Urban Institute study treat all 5 million 30-hour workers as full time, rendering their analysis unreliable.

Indeed, there were numerous reports of employers cutting workers to 29.5 or even 29.75 hours. Economists have noted that workers with their hours closest to 30 are most likely to have their schedules trimmed. Not only is it less disruptive to worker morale to lose a half hour of work, as opposed to 3 or 4 hours, but the penalty is greatest per hour of work for those working exactly 30 hours.

For companies that provide coverage to most workers over 30 hours, that penalty equals $3,120 per uncovered full-timer in 2015. Remember that the penalty is paid after taxes. Converted to the equivalent in tax-deductible wages, the fine is equal to about $5,120 in wages for a company facing the average combined federal and state tax rate of 39.1%.

Now it's fair to say that as employment has picked up and the jobless rate has come down, companies have likely become somewhat less concerned about ObamaCare penalties and more concerned about finding and hanging onto good workers. But as the penalty grows from year to year (along with the growth of the average national health insurance premium), so too may its bite, particularly as the economic cycle begins to turn.

The Secret Of Timing

Timing, in other words, matters a lot, and timing may be the biggest problem with the other two studies. One study from Aparna Mathur and Michael Strain of the American Enterprise Institute and Sita Slavov of George Mason University compares work hours before ObamaCare's passage (from January 2008 to February 2010) to work hours after (from March 2010 to July 2014).

Thus, the "after" includes nearly three full years before the earliest measurement period for ObamaCare penalties was set to begin, during which time the Supreme Court was set to decide whether the individual mandate was kosher and President Obama had to face re-election.

Asked whether it would have made more sense to focus on the period starting in 2013, Strain responded: "I don't agree that it would have made more sense, but I do agree that this would be an interesting question to study.

Strain and his colleagues did find a shift from above 30 hours to below, but the shift wasn't more pronounced in lower-wage service industries likely to feel the brunt of the mandate, so the authors concluded that the mandate didn't have an effect.

One shortcoming of the methodology is that it looked at employment by industry, not occupation. Yet school districts, local governments and colleges account for the bulk of IBD's database of hour-cutters. The fact that bus drivers, cafeteria workers and paraprofessionals lost hours in a high-paying industry actually helps generate the study's conclusion that ObamaCare hasn't had an impact.

Other data also appear to contradict their finding that service-sector workers aren't bearing the brunt of short shifts and lack of full-time jobs. Researchers from the Atlanta Federal Reserve noted earlier this year that the share of workers stuck in part-time jobs was nearly back to normal in production industries but the recovery had barely dented the share of people working part time for economic reasons in general service industries.

Timing is also a main flaw of a third study from human resources service provider ADP, which compared work hours in the third quarter of 2013 to the fourth quarter of 2014. The study missed out on the substantial shift that was already well advanced when the Obama administration, at the start of July 2013, pushed back the mandate penalty until 2015. The White House subsequently delayed the penalty for companies with fewer than 100 full-time equivalent workers until 2016.

Lastly, it's not clear how well the ADP study adjusts for seasonal factors, since retail and hospitality-sector workers tend to work longer hours in the fourth quarter. It's hard to conclude much from studying a quarter's worth of data, especially the fourth quarter.