Socialism encourages jobcreators

[Welf]

Source: he Blog Economixs on the New York Times.

Author: CATHERINE RAMPELL

Affordable Care Act Could Be Good for Entrepreneurship
By CATHERINE RAMPELL

Dollars to doughnuts.

The Affordable Care Act is expected to produce a sharp increase in entrepreneurship next year, according to a new report from the Robert Wood Johnson Foundation, the Urban Institute and Georgetown University’s Health Policy Institute. The number of self-employed people is expected to rise by 1.5 million — a relative increase of more than 11 percent — as a direct result of the health care overhaul.

One major barrier to entrepreneurship in the United States — beside the usual risks involved with starting a company — is that it has been difficult to get health insurance on the individual market. Those who do end up founding or joining a start-up are often able to do so because they have a spouse with employer-sponsored insurance, or because they are keeping a day job with a bigger company. (This was the case, for example, for most of the people involved with Leap2, a Kansas City start-up that I profiled last fall.)

Economists have looked at whether this insurance-related job lock is deterring self-employment and the formation of new businesses, and the data suggest it is. A Journal of Health Economics paper, for example, found that business ownership rates jumped sharply from just under age 65 to just over age 65, when people become newly eligible for Medicare. Using Current Population Survey data, the same paper also found that wage and salary workers are more likely to start businesses from one year to the next if they have a spouse with employer-based insurance.

A working paper from the Upjohn Institute looked at a change in the law in New Jersey that expanded access to individual health insurance. It found that the law seemed to increase self-employment, particularly among “unmarried, older, and observably less-healthy individuals.”

The report released Friday applies those findings to a model of what will happen in 2014, based on the Affordable Care Act’s provisions for “universal availability of non-group coverage, the financial assistance available for it, and other related market reforms.” The authors also adjusted their numbers depending on the access that residents of various states already have to individual health insurance. (Vermont, for example, already has a statute that allows the self-employed to obtain small group coverage.) Over all, they found, the ranks of the self-employed are likely to rise 11.5 percent, from about 13.1 million to 14.6 million. A table with their state-by-state estimates is below.

By the way, the paper does not mention this, but the same forces that will make it easier for workers to become self-employed may also make it easier for workers to retire early. I have heard anecdotally about people in their late 50s or early 60s who would like to retire but can’t do so because they’re basically uninsurable (for now) on the individual market; I wonder if we’ll notice a wave of retirements in this age group come 2014.

State Self Employment Absent A.C.A. Self-Employment Post-A.C.A. Changes Increase Due to A.C.A. % Increase Due to A.C.A.
Alabama 118,000 134,000 16,000 13.6%
Alaska 31,000 35,000 4,000 12.9%
Arizona 301,000 340,000 39,000 13.0%
Arkansas 99,000 112,000 13,000 13.1%
California 1,901,000 2,149,000 248,000 13.0%
Colorado 304,000 331,000 27,000 8.9%
Connecticut 185,000 202,000 17,000 9.2%
Delaware 31,000 33,000 2,000 6.5%
District of Columbia 21,000 24,000 3,000 14.3%
Florida 819,000 891,000 72,000 8.8%
Georgia 432,000 488,000 56,000 13.0%
Hawaii 58,000 63,000 5,000 8.6%
Idaho 83,000 94,000 11,000 13.3%
Illinois 475,000 537,000 62,000 13.1%
Indiana 224,000 253,000 29,000 12.9%
Iowa 148,000 167,000 19,000 12.8%
Kansas 116,000 131,000 15,000 12.9%
Kentucky 150,000 170,000 20,000 13.3%
Louisiana 179,000 203,000 24,000 13.4%
Maine 73,000 79,000 6,000 8.2%
Maryland 231,000 261,000 30,000 13.0%
Massachusetts 281,000 281,000 0 0.0%
Michigan 317,000 344,000 27,000 8.5%
Minnesota 258,000 292,000 34,000 13.2%
Mississippi 102,000 110,000 8,000 7.8%
Missouri 242,000 273,000 31,000 12.8%
Montana 72,000 81,000 9,000 12.5%
Nebraska 104,000 117,000 13,000 12.5%
Nevada 104,000 117,000 13,000 12.5%
New Hampshire 74,000 81,000 7,000 9.5%
New Jersey 304,000 330,000 26,000 8.6%
New Mexico 94,000 106,000 12,000 12.8%
New York 743,000 808,000 65,000 8.7%
North Carolina 378,000 411,000 33,000 8.7%
North Dakota 52,000 58,000 6,000 11.5%
Ohio 514,000 581,000 67,000 13.0%
Oklahoma 173,000 196,000 23,000 13.3%
Oregon 212,000 240,000 28,000 13.2%
Pennsylvania 464,000 524,000 60,000 12.9%
Rhode Island 43,000 46,000 3,000 7.0%
South Carolina 155,000 176,000 21,000 13.5%
South Dakota 57,000 65,000 8,000 14.0%
Tennessee 258,000 292,000 34,000 13.2%
Texas 955,000 1,079,000 124,000 13.0%
Utah 99,000 112,000 13,000 13.1%
Vermont 41,000 41,000 0 0.0%
Virgina 333,000 376,000 43,000 12.9%
Washington 346,000 376,000 30,000 8.7%
West Virginia 46,000 52,000 6,000 13.0%
Wisconsin 256,000 290,000 34,000 13.3%
Wyoming 32,000 36,000 4,000 12.5%

tl;dr if risk is reduced, people are more likely to do someting. Especially when the risk is to do or suffer permanent health damage because of insufficient medical care. Not really a new thing for people who have actual knowledge of economics, but still worth mentioning, since this study delivers hard data. The jump of people above 65 who start their own business is very telling.

I speculate the this will not only the quantity of entrepreneurship increase, but also the quality. Health risk is mostly exogenous and thus something you can't control. Some who chooses entrepreneurship despite those risk he can't control,is more risk affine than someone who doesn't. Now people will do this who consider risks more careful. Which means their companies are less likely to go bankrupt because of unnecessary risk.

The article mentions that this will also lead to people go to early retirement. This is the "social security makes people lazy" that conservatives and Austrian "economists" always whine about. I think it's a political decision if it's good or bad if sick elderly can go to retirement early or not. But now you can't deny that there's a trade-off to more entrepreneurship/job creators in an economy.
And in the current economic situation, this might actually increase the productivity of the US economy. This means that people with low productivity will leave the job market, and younger people will replace them. Changing and training will cost employers some money, so they want to avoid it. But the training and job experience will make those younger people get productivity increases in short time, instead of loosing skills by long unemployment.

[energiewende]

Self-employment is generally high in countries with large bureaucratic obstacles to employing people (eg. Greece). Most of these are single-person "companies" that only exist to allow workers to be re-categorised as employer-owners and therefore avoid legal obligations that those formally classified as employer-owners owe to those formally classified as workers. Instead of "hiring" a "worker" you "contract" a "company" and therefore don't have any obligations toward the contractor as you would to a real employee.

At 65 being eligible for medicare isn't the only thing that happens; a lot of people are compulsory-retired and are unable to get a new job the usual way.

[Welf]

That is a good point actually. I wonder how big that effect is on the 65 threshold. And this makes the level of entrepreneurship between countries difficult to compare.

So it will be interesting if the predicted increase of entrepreneurship over all age groups within the USA will occur. Because that would prove the positive effect of mandatory health care.

[energiewende]

As I understand it the healthcare law requires companies over a certain size to provide group healthcare to its employees. Wouldn't we then expect to see a large increase in the number of companies under that certain size to spring up, not if the law had a positive effect, but rather a negative effect on employment and business competitiveness, representing peoples' attempts to circumvent the law?

[Welf]

It will have negative effects; that is undeniable. But it will have positive effects, too, and those will outweighs the negatives.

There will be a movement of company size to avoid regulation. But this article predicts an increase of self-employed people. So there's a positive effect to counter that. Those are different effects, since self-employed people are not companies. (Correct me if I'm wrong, I assume US statistics/economic classifications work similar like here)

[energiewende]

It probably will have positive effects to the extent it reduces the number of people who are uninsured. That is of course the main point. I would just be slow to regard an increase in self-employment as a measure of success of the law.

One can incorporate a business to be self-employed but it is not mandatory. It is more normal to do it if you are taking on debts because your personal assets (house etc) could not be claimed by your creditors if your company goes bankrupt. But I think both have the same effect as far as avoiding the obligations of the new law are concerned.

[Simon_Jester]

The article mentions that this will also lead to people go to early retirement. This is the "social security makes people lazy" that conservatives and Austrian "economists" always whine about. I think it's a political decision if it's good or bad if sick elderly can go to retirement early or not. But now you can't deny that there's a trade-off to more entrepreneurship/job creators in an economy.
And in the current economic situation, this might actually increase the productivity of the US economy. This means that people with low productivity will leave the job market, and younger people will replace them. Changing and training will cost employers some money, so they want to avoid it. But the training and job experience will make those younger people get productivity increases in short time, instead of loosing skills by long unemployment.

Although we are entering a period where there will be so many retired and elderly people that the sheer logistics of keeping everyone fed and alive on a small labor force could become a problem. So I'm not sure it's a good thing to have a lot of people retiring at 55-60, when we have cause to expect that the retirement age for people in their 30s and 40s today may get pushed back to 67 or 70.