Krugman and Gruber are deeply confused about "voluntary" job losses
By Scott Sumner
Jonathan Gruber is mad as hell, and he’s not going to take it anymore. The eminent health care economist and health reform architect is annoyed at Casey Mulligan’s latest, which misrepresents Gruber’s views; mine too.
Gruber is right to be mad: that was a disgraceful, deceptive column. But I think you also want to put it into a larger picture: the enduring myth of the stupid progressive economist.
Here is a portion of the Jonathan Gruber column that was supposedly misrepresented:
But actually the CBO did not project lost jobs at all. Job leaving is not the same as job losing. Many Americans who may eventually leave jobs or reduce their work hours will do so by choice to make themselves and their families better off. Voluntary reductions are not a cost of the healthcare reform law, they are a benefit. . . .
But the likelihood of voluntary reductions in work is not the only issue. The CBO also projects work reduction by individuals who cut back on hours or avoid moving up the job ladder because they don’t want to lose Medicaid eligibility, or because they don’t want to make so much in wages that they would lose tax credits to help pay insurance premiums. Unlike voluntary job leaving, this second kind of work reduction would entail real economic distortions and be a cost, not a benefit.
Mulligan focused on the first paragraph, and ignored the second. I suppose one could argue that that omission was deceptive, but in this case I’m not very sympathetic. The first paragraph represents the overall tone of Gruber’s piece, and the second is a sort of throwaway “to be sure.” But here’s the bigger problem, the second paragraph implies that the first is incorrect, and hence that the entire Gruber piece is deeply misleading.
The basic problem is that Gruber suggests some sort of important distinction here between voluntary and involuntary job losses. But the reduced employment discussed in the second paragraph is every bit as voluntary as the lost of employment in the first paragraph. Mulligan is right, a distorted labor market is a distorted labor market, regardless of how one tries to characterize it.
Labor market distortions and sticky wage recessions have several things in common. Both result in lower output, and both result in increased leisure. In both cases the baseline assumption is that the increased leisure is valued at less that the lost output.
However there is an important difference in this case. Sticky wage recessions do not advance any important public policy objectives, medical subsidies do. I happen to support the concept of government subsidies for medical care, which means I’m willing to accept some labor market distortions. (However I oppose Obamacare.) But use of terms like ‘voluntary’ is deeply misleading, for reasons I discussed in this earlier post. Distortions create deadweight losses, and the reasons have nothing to do with the “voluntary” nature of the public’s responses to those distortions.