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Labor Market Responses to Rising Health Insurance Costs: Evidence on Hours Worked

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  • David M. Cutler
  • Brigitte C. Madrian

Abstract

Increases in the cost of providing health insurance must have some effect on labor markets, either in lower wages, changes in the composition of employment, or both. Despite a presumption that most of this effect will be in the form of lower wages, we document in this paper a significant effect on work hours as well. Using data from the CPS and the SIPP, we show that rising health insurance costs over the 1980s increased the hours worked of those with health insurance by up to 3 percent. We argue that this occurs because health insurance is a fixed cost, and as it becomes more expensive to provide, firms face an incentive to substitute hours per worker for the number of workers employed.

Suggested Citation

  • David M. Cutler & Brigitte C. Madrian, 1996. "Labor Market Responses to Rising Health Insurance Costs: Evidence on Hours Worked," NBER Working Papers 5525, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:5525
    Note: AG EH PE
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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