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Does Public Health Insurance Reduce Labor Market Flexibility or Encourage the Underground Economy? Evidence from Spain and the United States

In: Social Protection versus Economic Flexibility: Is There a Trade-Off?

  • Sara de la Rica
  • Thomas Lemieux

This paper compares the labor market implications of the health insurance system in Spain and in the United States. While most health insurance is privately provided to workers (by employers) in the United States, Spanish workers obtain health insurance coverage from the public social security system. The Spanish system is financed by a payroll (social security) tax shared between employers and employees. There is clear evidence, however, of widespread non-compliance with the social security tax. This paper empirically compares the incidence of health insurance coverage among U.S. workers to the pattern of compliance with the social security tax among Spanish workers. The main finding of this paper is that these two patterns are very similar. They both depend on the same supply and demand factors, which is consistent with basic economic models of private provision of benefits and of tax compliance. However, one important difference between the two systems is that in Spain, unlike the United States, essentially all heads of household work in the covered sector and thus have a full access to public health care for themselves and for their dependents.

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This chapter was published in:
  • Rebecca M. Blank, 1994. "Social Protection versus Economic Flexibility: Is There a Trade-Off?," NBER Books, National Bureau of Economic Research, Inc, number blan94-1, 07.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 11261.
    Handle: RePEc:nbr:nberch:11261
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
    Phone: 617-868-3900
    Web page: http://www.nber.org
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    1. 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.
    2. Patricia M. Danzon, 1990. "Mandated Employment-Based Health Insurance:Incidence and Efficiency Effects," University of Chicago - George G. Stigler Center for Study of Economy and State 60, Chicago - Center for Study of Economy and State.
    3. Bernard Fortin & Thomas Lemieux & Pierre Frechette, 1990. "An Empirical Model of Labor Supply in the Underground Economy," NBER Working Papers 3392, National Bureau of Economic Research, Inc.
    4. Summers, Lawrence H, 1989. "Some Simple Economics of Mandated Benefits," American Economic Review, American Economic Association, vol. 79(2), pages 177-83, May.
    5. Diamond, Peter, 1992. "Organizing the Health Insurance Market," Econometrica, Econometric Society, vol. 60(6), pages 1233-54, November.
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