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

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  • Sara De La Rica
  • Thomas Lemieux

Abstract

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.

Suggested Citation

  • Sara De La Rica & Thomas Lemieux, 1993. "Does Public Health Insurance Reduce Labor Market Flexibility or Encourage the Underground Economy? Evidence from Spain and the United States," NBER Working Papers 4402, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:4402
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    References listed on IDEAS

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    1. Fortin, B. & Lemieux, T. & Frechette, P., 1990. "An Empirical Model Of Labor Supply In The Underground Economy.," Papers 9005, Laval - Recherche en Politique Economique.
    2. Diamond, Peter, 1992. "Organizing the Health Insurance Market," Econometrica, Econometric Society, vol. 60(6), pages 1233-1254, November.
    3. Frank A. Cowell, 1990. "Cheating the Government: The Economics of Evasion," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262532484, January.
    4. 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.
    5. 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.
    6. Summers, Lawrence H, 1989. "Some Simple Economics of Mandated Benefits," American Economic Review, American Economic Association, vol. 79(2), pages 177-183, May.
    7. repec:fth:prinin:279 is not listed on IDEAS
    8. Jonathan Gruber & Alan Krueger, 1990. "The Incidence of Mandated Employer-Provided Insurance: Lessons from Workers' Compensations Insurance," Working Papers 659, Princeton University, Department of Economics, Industrial Relations Section..
    9. Stigler, George J & Becker, Gary S, 1977. "De Gustibus Non Est Disputandum," American Economic Review, American Economic Association, vol. 67(2), pages 76-90, March.
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    Citations

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    Cited by:

    1. Paula Auerbach & María Eugenia Genoni & Carmen Pagés, 2005. "Social Security Coverage and the Labor Market in Developing Countries," IDB Publications (Working Papers) 1111, Inter-American Development Bank.
    2. Card, David & de la Rica, Sara, 2004. "The Effect of Firm-Level Contracts on the Structure of Wages: Evidence from Matched Employer-Employee Data," IZA Discussion Papers 1421, Institute for the Study of Labor (IZA).
    3. Brigitte C. Madrian, 2005. "The U.S. health care system and labor markets," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 50(Jun), pages 137-163.
    4. Paula Auerbach & María Eugenia Genoni & Carmen Pagés-Serra, 2005. "Cobertura del sistema de seguridad social y el mercado laboral en países en desarrollo," Research Department Publications 4422, Inter-American Development Bank, Research Department.
    5. repec:eee:labchp:v:3:y:1999:i:pc:p:3309-3416 is not listed on IDEAS
    6. Mary C. King, 2002. "Strong Families or Patriarchal Economies? Southern European Labor Markets and Welfare in Comparative Perspective," EUI-RSCAS Working Papers 14, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
    7. Amuedo-Dorantes, Catalina & de la Rica, Sara, 2005. "Immigrants' Responsiveness to Labor Market Conditions and Its Implications on Regional Disparities: Evidence from Spain," IZA Discussion Papers 1557, Institute for the Study of Labor (IZA).

    More about this item

    JEL classification:

    • I1 - Health, Education, and Welfare - - Health
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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