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Labor Market Responses to Rising Health Insurance Costs: Evidence on Hours Worked

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  • David M. Cutler
  • Brigitte C. Madrian

Abstract

Increases in the cost of providing health insurance must have some effect on labor markets, either in lower wages, changes in the composition of employment, or both. Despite a presumption that most of this effect will be in the form of lower wages, we document a significant effect on work hours as well. Using data from the Current Population Survey (CPS) and the Survey of Income and Program Participation (SIPP), we show that rising health insurance costs during the 1980s increased the hours worked by those with health insurance by up to 3%. We argue that this occurs because health insurance is a fixed cost, and as it becomes more expensive to provide, firms face an incentive to substitute hours per worker for the number of workers employed.

Suggested Citation

  • David M. Cutler & Brigitte C. Madrian, 1998. "Labor Market Responses to Rising Health Insurance Costs: Evidence on Hours Worked," RAND Journal of Economics, The RAND Corporation, vol. 29(3), pages 509-530, Autumn.
  • Handle: RePEc:rje:randje:v:29:y:1998:i:autumn:p:509-530
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    References listed on IDEAS

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    1. Mark Montgomery & James Cosgrove, 1993. "The Effect of Employee Benefits on the Demand for Part-Time Workers," ILR Review, Cornell University, ILR School, vol. 47(1), pages 87-98, October.
    2. Montgomery, Mark, 1988. "On the Determinants of Employer Demand for Part-Time Workers," The Review of Economics and Statistics, MIT Press, vol. 70(1), pages 112-117, February.
    3. Jonathan Gruber & Alan B. Krueger, 1991. "The Incidence of Mandated Employer-Provided Insurance: Lessons from Workers' Compensation Insurance," NBER Chapters,in: Tax Policy and the Economy, Volume 5, pages 111-144 National Bureau of Economic Research, Inc.
    4. Trejo, Stephen J, 1991. "The Effects of Overtime Pay Regulation on Worker Compensation," American Economic Review, American Economic Association, vol. 81(4), pages 719-740, September.
    5. David Bradford, 1991. "Tax Policy and the Economy, Volume 5," NBER Books, National Bureau of Economic Research, Inc, number brad91-1.
    6. Gruber, Jonathan, 1994. "The Incidence of Mandated Maternity Benefits," American Economic Review, American Economic Association, vol. 84(3), pages 622-641, June.
    7. Summers, Lawrence H, 1989. "Some Simple Economics of Mandated Benefits," American Economic Review, American Economic Association, vol. 79(2), pages 177-183, May.
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    More about this item

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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