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Equilibrium Labor Market Search and Health Insurance Reform

  • Hanming Fang

    (University of Pennsylvania)

  • Naoki Aizawa

    (University of Pennsylvania)

We empirically implement an equilibrium labor market search model where both wages and health insurance provisions are endogenously determined and use it to predict the impact of the 2010 U.S. health insurance reform on health insurance coverage and labor market outcomes. In our model, employers make a health insurance coverage decision by taking into account health composition of their employees. By offering health insurance, they may attract unhealthy workers who both increase their health insurance costs and decrease their labor productivity, generating an adverse selection problem. On the other hand, because health insurance coverage can improve employees' future health status, the cost generated by the adverse selection will be reduced over time. In equilibrium, more productive employers benefit more from the latter channel, leading to a positive correlation among wage, health insurance coverage, and employer size, which is consistent with the data. We estimate the model using Survey of Income and Program Participation, Medical Expenditure Panel Survey, and Robert Wood Johnson Employer Health Insurance Survey. We use the model estimates to evaluate the equilibrium effects of several features of the health insurance reform.

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Paper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 959.

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Date of creation: 2012
Date of revision:
Handle: RePEc:red:sed012:959
Contact details of provider: Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA
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  1. Pierre Cahuc & Fabien Postel-Vinay & Jean-Marc Robin, 2003. "Wage bargaining with on-the-job search : theory and evidence," Research Unit Working Papers 0212, Laboratoire d'Economie Appliquee, INRA.
  2. Postel-Vinay, Fabien & Robin, Jean-Marc, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," CEPR Discussion Papers 3548, C.E.P.R. Discussion Papers.
  3. Hanming Fang & Alessandro Gavazza, 2010. "Dynamic Inefficiencies in an Employment-Based Health Insurance System: Theory and Evidence," Working Papers 10-01, Duke University, Department of Economics.
  4. Pashchenko, Svetlana & Porapakkarm, Ponpoje, 2012. "Quantitative analysis of health insurance reform: separating regulation from redistribution," MPRA Paper 41193, University Library of Munich, Germany.
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  7. Grégory Jolivet & Fabien Postel-Vinay & Jean-Marc Robin, 2006. "The Empirical Content of the Job Search Model: Labor Mobility and Wage Distributions in Europe and the U.S," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00308803, HAL.
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  12. Andrew Shephard, 2011. "Equilibrium Search and Tax Credit Reform," Working Papers 1336, Princeton University, Department of Economics, Center for Economic Policy Studies..
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  14. Christian Bontemps & Jean-Marc Robin & Gérard J. Van den Berg, 1999. "An Empirical Equilibrium Job Search Model With Search on the Job and Heterogeneous Workers and Firms," Post-Print hal-00357757, HAL.
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  18. Bontemps, Christian & Robin, Jean-Marc & van den Berg, Gerard J, 2000. "Equilibrium Search with Continuous Productivity Dispersion: Theory and Nonparametric Estimation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(2), pages 305-58, May.
  19. Martin B. Hackmann & Jonathan T. Kolstad & Amanda E. Kowalski, 2012. "Health Reform, Health Insurance, and Selection: Estimating Selection into Health Insurance Using the Massachusetts Health Reform," American Economic Review, American Economic Association, vol. 102(3), pages 498-501, May.
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  24. Svetlana Pashchenko & Ponpoje Porapakkarm, 2012. "Online Appendix to "Quantitative Analysis of Health Insurance Reform: Separating Regulation from Redistribution"," Technical Appendices 11-70, Review of Economic Dynamics.
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  29. Jean-Marc ROBIN & Sébastien ROUX, 2002. "An Equilibrium Model of the Labor Market with Endogenous Capital and Two-Sided Search," Annals of Economics and Statistics, GENES, issue 67-68, pages 257-307.
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