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How Do Health Insurance Costs Affect Firm Labor Composition and Technology Investment?

Author

Listed:
  • Janet Gao
  • Shan Ge
  • Lawrence D. W. Schmidt
  • Cristina Tello-Trillo

Abstract

Employer-sponsored health insurance is a significant component of labor costs. We examine the causal effect of health insurance premiums on firms’ employment, both in terms of quantity and composition, and their technology investment decisions. To address endogeneity concerns, we instrument for insurance premiums using idiosyncratic variation in insurers’ recent losses, which is plausibly exogenous to their customers who are employers. Using Census microdata, we show that following an increase in premiums, firms reduce employment. Relative to higher-income coworkers, lower-income workers see a larger increase in their likelihood of being separated from their jobs and becoming unemployed. Firms also invest more in information technology, potentially to substitute labor.

Suggested Citation

  • Janet Gao & Shan Ge & Lawrence D. W. Schmidt & Cristina Tello-Trillo, 2023. "How Do Health Insurance Costs Affect Firm Labor Composition and Technology Investment?," Working Papers 23-47, Center for Economic Studies, U.S. Census Bureau.
    • Handle: RePEc:cen:wpaper:23-47
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    File URL: https://www2.census.gov/library/working-papers/2023/adrm/ces/CES-WP-23-47.pdf
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    More about this item

    Keywords

    Health insurance; insurer losses; worker skills; firm employment; labor composition; inequality; technology investment; automation;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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