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Equilibrium Labor Market Search and Health Insurance Reform

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  • Hanming Fang

    (University of Pennsylvania)

  • Naoki Aizawa

    (University of Pennsylvania)

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    Abstract

    We empirically implement an equilibrium labor market search model where both wages and health insurance provisions are endogenously determined and use it to predict the impact of the 2010 U.S. health insurance reform on health insurance coverage and labor market outcomes. In our model, employers make a health insurance coverage decision by taking into account health composition of their employees. By offering health insurance, they may attract unhealthy workers who both increase their health insurance costs and decrease their labor productivity, generating an adverse selection problem. On the other hand, because health insurance coverage can improve employees' future health status, the cost generated by the adverse selection will be reduced over time. In equilibrium, more productive employers benefit more from the latter channel, leading to a positive correlation among wage, health insurance coverage, and employer size, which is consistent with the data. We estimate the model using Survey of Income and Program Participation, Medical Expenditure Panel Survey, and Robert Wood Johnson Employer Health Insurance Survey. We use the model estimates to evaluate the equilibrium effects of several features of the health insurance reform.

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    Bibliographic Info

    Paper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 959.

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    Date of creation: 2012
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    Handle: RePEc:red:sed012:959

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    1. Jolivet, Gregory & Postel-Vinay, Fabien & Robin, Jean-Marc, 2006. "The empirical content of the job search model: Labor mobility and wage distributions in Europe and the US," European Economic Review, Elsevier, vol. 50(4), pages 877-907, May.
    2. repec:dgr:uvatin:2098089 is not listed on IDEAS
    3. 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.
    4. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," Econometrica, Econometric Society, vol. 70(6), pages 2295-2350, November.
    5. Gerard J. van den Berg & Geert Ridder, 1998. "An Empirical Equilibrium Search Model of the Labor Market," Econometrica, Econometric Society, vol. 66(5), pages 1183-1222, September.
    6. Bontemps, Christian & Robin, Jean-Marc & van den Berg, Gerard J, 2000. "Equilibrium Search with Continuous Productivity Dispersion: Theory and Nonparametric Estimation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(2), pages 305-58, May.
    7. Andrew Shephard, 2011. "Equilibrium Search and Tax Credit Reform," Working Papers 1336, Princeton University, Department of Economics, Center for Economic Policy Studies..
    8. Bontemps, Christian & Robin, Jean-Marc & Van den Berg, Gerard J, 1999. "An Empirical Equilibrium Job Search Model with Search on the Job and Heterogeneous Workers and Firms," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 1039-74, November.
    9. Wolpin, Kenneth I, 1992. "The Determinants of Black-White Differences in Early Employment Careers: Search, Layoffs, Quits, and Endogenous Wage Growth," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 535-60, June.
    10. Cahuc, Pierre & Postel-Vinay, Fabien & Robin, Jean-Marc, 2003. "Wage Bargaining with On-The-Job Search: Theory and Evidence," CEPR Discussion Papers 4154, C.E.P.R. Discussion Papers.
    11. Dey, M. S. & Flinn, C. J., 2000. "An Equilibrium Model of Health Insurance Provision and Wage Determination," Working Papers 00-18, C.V. Starr Center for Applied Economics, New York University.
    12. repec:dgr:uvatin:1998089 is not listed on IDEAS
    13. 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.
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