| Abstract: |
Since 2000, premiums for employer-provided health insurance have increased by
59 percent with little corresponding increase in the generosity of coverage.
The effect of this increase in costs on wages and employment will depend on
workers' valuation of the benefit, the elasticities of labor supply and
demand, and institutional constraints on employers' ability to lower wages.
Measuring these effects is difficult, however, without a source of exogenous
variation in the cost of benefits. We use variation in medical malpractice
payments driven by the recent "medical malpractice crisis" to identify the
causal effect of rising health insurance premiums on wages, employment, and
health insurance coverage. We estimate that a 10 percent increase in health
insurance premiums reduces the aggregate probability of being employed by 1.6
percent and hours worked by 1 percent, and increases the likelihood that a
worker is employed only part-time by 1.9 percent. For workers covered by
employer provided health insurance, this increase in premiums results in an
offsetting decrease in wages of 2.3 percent. Thus, rising health insurance
premiums may both increase the ranks of the unemployed and place an increasing
burden on workers through decreased wages for workers with employer health
insurance and decreased hours for workers moved from full time jobs with
benefits to part time jobs without. |