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An Equilibrium Model of Health Insurance Provision and Wage Determination

  • Matthew S. Dey
  • Christopher J. Flinn

We investigate the effect of employer-provided health insurance on job mobility rates and economic welfare using a search, matching, and bargaining framework. In our model, health insurance coverage decisions are made in a cooperative manner that recognizes the productivity effects of health insurance as well as its nonpecuniary value to the employee. The resulting equilibrium is one in which not all employment matches are covered by health insurance, wages at jobs providing health insurance are larger (in a stochastic sense) than those at jobs without health insurance, and workers at jobs with health insurance are less likely to leave those jobs, even after conditioning on the wage rate. We estimate the model using the 1996 panel of the Survey of Income and Program Participation, and find that the employer-provided health insurance system does not lead to any serious inefficiencies in mobility decisions. Copyright The Econometric Society 2005.

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File URL: http://hdl.handle.net/10.1111/j.1468-0262.2005.00588.x
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Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 73 (2005)
Issue (Month): 2 (03)
Pages: 571-627

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Handle: RePEc:ecm:emetrp:v:73:y:2005:i:2:p:571-627
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  1. Gruber, J. & Hanratty, M., 1994. "The Labor Market Efects of Introducing National Health Insurance: Evidence from Canada," Working papers 94-05, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Kanika Kapur, 1998. "The Impact of Health on Job Mobility: A Measure of Job Lock," ILR Review, Cornell University, ILR School, vol. 51(2), pages 282-298, January.
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