The Inflation Reduction Act is now law. In the long run, the law is expected to have beneficial effects on deficit reduction as per the Congressional Budget Office. Through extensions of Affordable Care Act subsidies and prescription drug pricing reforms, it aims to decrease health care expenditures for seniors and lower-income households, and takes positive steps forward on climate policy through investments in clean energy and tax credits for households to offset energy costs.
However, as a recent Penn Wharton Budget Model analysis shows, the effects on inflation, the intended goal of the law, are likely to be negligible. As an immediate step to reduce inflation pressures, we could prioritize policies such as paid leave and affordable child care that increase labor force participation by bringing workers off the sidelines. At a time when job openings are at record highs and nominal wages are growing at the fastest pace in decades, it is time to reconsider policies that could offset rising pressure on the labor market but have been excluded as part of the Inflation Reduction Act.
The latest data from the Census Bureau’s Household Pulse Survey shows that more than 8.6 million Americans are not currently working because they either have family members who are sick from COVID, are sick themselves or are caring for children not in school or daycare. Labor force participation plummeted at the onset of the pandemic and has not yet recovered to pre-pandemic levels. Even today, labor force participation is 1.0 and 1.7 percentage points below February 2020 levels for women and men, respectively.
