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Health insurance as a productive factor

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  • Dizioli, Allan
  • Pinheiro, Roberto B.

Abstract

In this paper, we present a less-explored channel through which health insurance impacts productivity: by offering health insurance, employers reduce the expected time workers spend out of work in sick days. Using data from the Medical Expenditure Panel Survey (MEPS), we show that a worker with health coverage misses on average 52% fewer workdays than uninsured workers, after controlling for endogeneity. We develop a model that embodies this impact of health coverage in productivity. In our model, health insurance reduces the probability that a healthy worker gets sick, missing workdays, and it increases the probability that a sick worker recovers and returns to work. In our model, firms that offer health insurance are larger and pay higher wages in equilibrium, a pattern observed in the data. We calibrated the model using US data for 2004 and show the impact of increases in health costs, as well as of changes in tax benefits of health insurance expenses, on labor force health coverage and productivity. Finally, we show that a government mandate that forces firms to offer health insurance increases average wages and aggregate productivity while reducing aggregate profits, ultimately having a positive impact on welfare.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 39743.

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Date of creation: 29 Jun 2012
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Handle: RePEc:pra:mprapa:39743

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Keywords: Health; Health Insurance; Labor Productivity; Labor Markets;

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References

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  1. Thomas C. Buchmueller & Alan C. Monheit, 2009. "Employer-Sponsored Health Insurance and the Promise of Health Insurance Reform," NBER Working Papers 14839, National Bureau of Economic Research, Inc.
  2. Terza, Joseph V. & Basu, Anirban & Rathouz, Paul J., 2008. "Two-stage residual inclusion estimation: Addressing endogeneity in health econometric modeling," Journal of Health Economics, Elsevier, vol. 27(3), pages 531-543, May.
  3. Kenneth Burdett & Dale T. Mortensen, 1989. "Equilibrium Wage Differentials and Employer Size," Discussion Papers 860, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Iourii Manovskii & Bjoern Bruegemann, 2010. "Fragility: A Quantitative Analysis of the US Health Insurance System," 2010 Meeting Papers 787, Society for Economic Dynamics.
  5. Hanming Fang & Alessandro Gavazza, 2010. "Dynamic Inefficiencies in an Employment-Based Health Insurance System: Theory and Evidence," Working Papers 10-01, Duke University, Department of Economics.
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  7. Gruber, J. & Poterba, J., 1994. "Tax Incentives and the Decision to Purchase Health Insurance: Evidence from the Self-Employed," Working papers 94-10, Massachusetts Institute of Technology (MIT), Department of Economics.
  8. Matthew S. Dey & Christopher J. Flinn, 2005. "An Equilibrium Model of Health Insurance Provision and Wage Determination," Econometrica, Econometric Society, vol. 73(2), pages 571-627, 03.
  9. Charles Brown & Greg J. Duncan & Frank P. Stafford, 1996. "Data Watch: The Panel Study of Income Dynamics," Journal of Economic Perspectives, American Economic Association, vol. 10(2), pages 155-168, Spring.
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  11. William M. Gentry & Eric Peress, 1994. "Taxes and Fringe Benefits Offered by Employers," NBER Working Papers 4764, National Bureau of Economic Research, Inc.
  12. Melvyn G. Coles, 2001. "Equilibrium Wage Dispersion, Firm Size and Growth," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(1), pages 159-187, January.
  13. Jonathan Gruber & James M. Poterba, 1996. "Tax Subsidies to Employer-Provided Health Insurance," NBER Chapters, in: Empirical Foundations of Household Taxation, pages 135-168 National Bureau of Economic Research, Inc.
  14. Bowlus, Audra J & Kiefer, Nicholas M & Neumann, George R, 1995. "Estimation of Equilibrium Wage Distributions with Heterogeneity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(S), pages S119-31, Suppl. De.
  15. Burdett, Kenneth & Mortensen, Dale T, 1980. "Search, Layoffs, and Labor Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 88(4), pages 652-72, August.
  16. Gruber, Jonathan, 1994. "The Incidence of Mandated Maternity Benefits," American Economic Review, American Economic Association, vol. 84(3), pages 622-41, June.
  17. Barmby, Tim & Stephan, Gesine, 2000. "Worker Absenteeism: Why Firm Size May Matter," Manchester School, University of Manchester, vol. 68(5), pages 568-77, September.
  18. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-73, May.
  19. Stephen A. Woodbury & Wei-Jang Huang, 1991. "The Tax Treatment of Fringe Benefits," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number ttfb.
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