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Health care costs, wages, and aging

  • Louise Sheiner
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    While economists generally agree that workers pay for their health insurance costs through reduced wages, there has been little thought devoted to the level at which these costs are passed on: Is each employee's wage reduced by the amount of his or her own health costs, by the average health costs of employees in the firm, or by some amount in between? This paper analyzes one dimension of the question of how firms pass health costs to workers. Using cross-city variation in health costs, I test whether older workers pay for their higher health costs in the form of lower wages. I find that in cities where health insurance costs are high, the age/wage profile is flatter, indicating that older workers do pay for their higher health costs in the form of reduced wages. This finding is robust to the inclusion of several other city-specific variables that might also affect age/wage profiles and that could be correlated with health insurance costs. I also find that workers who choose family health insurance coverage pay for the added employer costs through reduced wages.

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    File URL: http://www.federalreserve.gov/pubs/feds/1999/199919/199919abs.html
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    File URL: http://www.federalreserve.gov/pubs/feds/1999/199919/199919pap.pdf
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    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 1999-19.

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    Date of creation: 1999
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    Handle: RePEc:fip:fedgfe:1999-19
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    1. Gruber, Jonathan, 1994. "The Incidence of Mandated Maternity Benefits," American Economic Review, American Economic Association, vol. 84(3), pages 622-41, June.
    2. Esel Y. Yazici & Robert Kaestner, 1998. "Medicaid Expansions and The Crowding Out of Private Health Insurance," NBER Working Papers 6527, National Bureau of Economic Research, Inc.
    3. Jeremy I. Bulow & Wayne Landsman, 1985. "The Relationship between Wages and Benefits," NBER Chapters, in: Pensions, Labor, and Individual Choice, pages 379-398 National Bureau of Economic Research, Inc.
    4. Edward B. Montgomery & Kathryn Shaw & Mary Ellen Benedict, 1990. "Pensions and Wages: An Hedonic Price Theory Approach," NBER Working Papers 3458, National Bureau of Economic Research, Inc.
    5. David Neumark, 1992. "Are Rising Wage Profiles a Forced-Saving Mechanism?," NBER Working Papers 4213, National Bureau of Economic Research, Inc.
    6. Edward P. Lazear, 1988. "Adjusting to an Aging Labor Force," NBER Working Papers 2802, National Bureau of Economic Research, Inc.
    7. Jonathan S. Skinner & John Wennberg, 2000. "How Much Is Enough? Efficiency and Medicare Spending in the Last Six Months of Life," NBER Chapters, in: The Changing Hospital Industry: Comparing For-Profit and Not-for-Profit Institutions, pages 169-194 National Bureau of Economic Research, Inc.
    8. William M. Gentry & Eric Peress, 1994. "Taxes and Fringe Benefits Offered by Employers," NBER Working Papers 4764, National Bureau of Economic Research, Inc.
    9. Frank, Robert H. & Hutchens, Robert M., 1993. "Wages, seniority, and the demand for rising consumption profiles," Journal of Economic Behavior & Organization, Elsevier, vol. 21(3), pages 251-276, August.
    10. Henry J. Aaron, 1994. "Issues Every Plan to Reform Health Care Financing Must Confront," Journal of Economic Perspectives, American Economic Association, vol. 8(3), pages 31-43, Summer.
    11. Arleen Leibowitz, 1983. "Fringe Benefits in Employee Compensation," NBER Chapters, in: The Measurement of Labor Cost, pages 371-394 National Bureau of Economic Research, Inc.
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