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Estimating the Compensating Differential for Employer-Provided Health Insurance

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  • Richard D. Miller, Jr.

Abstract

The theory of wage differentials argues that workers must pay for employer-provided group health insurance coverage through lower wages or reductions in other fringe benefits. This paper uses data from the 1988--90 Consumer Expenditure Survey (CEX) to estimate the wage-health insurance trade-off for male workers between the ages of 25 and 55. A fixed-effects model, which takes advantage of the rotating panel design of the CEX, is used to control for unobservable worker characteristics that are positively related with all forms of compensation, including wage earnings and health insurance coverage. I find a compensating differential for health insurance equal to roughly 10 to 11 percent of wages. Some caution is advised here due to the fact that I was unable to control for other fringe benefits, the most important being paid vacation and sick leave.

Suggested Citation

  • Richard D. Miller, Jr., 2004. "Estimating the Compensating Differential for Employer-Provided Health Insurance," International Journal of Health Economics and Management, Springer, vol. 4(1), pages 27-41, March.
    • Handle: RePEc:kap:ijhcfe:v:4:y:2004:i:1:p:27-41
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    Cited by:

    1. Anja Decressin & Julia Lane & Kristin McCue & Martha Stinson, 2005. "Employer-Provided Benefit Plans, Workforce Composition and Firm Outcomes," Longitudinal Employer-Household Dynamics Technical Papers 2005-01, Center for Economic Studies, U.S. Census Bureau.
    2. DeVaro, Jed & Maxwell, Nan L., 2014. "The elusive wage-benefit trade-off: The case of employer-provided health insurance," International Journal of Industrial Organization, Elsevier, vol. 37(C), pages 23-37.
    3. Stéphanie Lluis & Jean Abraham, 2013. "The Wage–Health Insurance Trade-off and Worker Selection: Evidence From the Medical Expenditure Panel Survey 1997 to 2006," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 52(2), pages 541-581, April.
    4. Johanna Catherine Maclean & Douglas Webber & Jody L. Sindelar, 2018. "Immigration and Access to Fringe Benefits: Evidence from the Tobacco Use Supplements," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 57(2), pages 235-259, April.
    5. Paige Qin & Michael Chernew, 2013. "Compensating Wage Differentials and the Impact of Health Insurance in the Public Sector on Wages and Hours," NBER Chapters, in: State and Local Health Plans for Active and Retired Public Employees, National Bureau of Economic Research, Inc.
    6. Erin Strumpf, 2010. "Employer-sponsored health insurance for early retirees: impacts on retirement, health, and health care," International Journal of Health Economics and Management, Springer, vol. 10(2), pages 105-147, June.
    7. Kyung Min Lee & Chanup Jeung, 2021. "The incidence of the healthcare costs of chronic conditions," International Journal of Health Economics and Management, Springer, vol. 21(4), pages 473-493, December.
    8. Qin, Paige & Chernew, Michael, 2014. "Compensating wage differentials and the impact of health insurance in the public sector on wages and hours," Journal of Health Economics, Elsevier, vol. 38(C), pages 77-87.

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