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An Equilibrium Model of Health Insurance Provision and Wage Determination

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  • Matthew S. Dey
  • Christopher J. Flinn

Abstract

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.

Suggested Citation

  • 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, March.
  • Handle: RePEc:ecm:emetrp:v:73:y:2005:i:2:p:571-627
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    File URL: http://hdl.handle.net/10.1111/j.1468-0262.2005.00588.x
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    References listed on IDEAS

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    1. Gruber, Jonathan & Hanratty, Maria, 1995. "The Labor-Market Effects of Introducing National Health Insurance: Evidence from Canada," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(2), pages 163-173, April.
    2. repec:cdl:ucsbec:12-95 is not listed on IDEAS
    3. Christopher A. Pissarides, 1985. "Taxes, Subsidies and Equilibrium Unemployment," Review of Economic Studies, Oxford University Press, vol. 52(1), pages 121-133.
    4. Peter A. Diamond, 1982. "Wage Determination and Efficiency in Search Equilibrium," Review of Economic Studies, Oxford University Press, vol. 49(2), pages 217-227.
    5. 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.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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