The Employer Penalty, Voluntary Compliance, and the Size Distribution of Firms: Evidence from a Survey of Small Businesses

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A new survey of 745 small businesses shows little change in the size distribution of businesses between 2012 and 2016, except among businesses with 40–74 employees, in a way that is closely related to whether they offer health insurance coverage. Using measures of both size and voluntary regulatory compliance, the paper links these changes to the Affordable Care Act’s employer mandate. As of 2017, between 28,000 and 50,000 businesses nationwide appear to be reducing their number of full-time-equivalent employees to below 50 because of that mandate. This translates to roughly 250,000 positions eliminated from those businesses.