Will ObamaCare Discourage Small Firms From Growing Past 50 Employees?

ObamaCare imposes a fine on employers who do not provide qualifying health insurance for their employees. This is supposed to encourage employers to offer health insurance and keep too many from dumping workers onto the law’s new health insurance exchanges. But there’s a significant exemption: Small businesses, defined as those with fewer than 50 employees, don’t have to pay the fine.

That provides some relief for small businesses. But it also provides an obvious incentive for them to stay small by penalizing companies that pass the 49-employee threshold. Growing companies will likely think long and hard about pushing past that mark, perhaps delaying hiring or declining it altogether in order to avoid the law’s fines. Many will probably choose to grow to 49 employees and then stop, at least temporarily.

We can see this effect at work in France, which regulates companies with 50 or more workers far more heavily than those with 49 or less. A December 2012 paper by Boston University economist Francois Gourio and University of Wisconsin economist Nicolas A. Roys for the National Bureau of Economic Research notes that, as a result of the regulatory cliff, the size distribution of firms in France “is visibly distorted: there are many firms with exactly 49 employees.” And they’ve got the graphs to prove it. ...

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