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Equilibrium Labor Market Search and Health Insurance Reform

  • Hanming Fang

    (University of Pennsylvania)

  • Naoki Aizawa

    (University of Pennsylvania)

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    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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    File URL: https://www.economicdynamics.org/meetpapers/2012/paper_959.pdf
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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
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    Handle: RePEc:red:sed012:959
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    1. Andrew Shephard, 2011. "Equilibrium Search and Tax Credit Reform," Working Papers 1336, Princeton University, Department of Economics, Center for Economic Policy Studies..
    2. Christian Bontemps & Jean-Marc Robin & Gérard J. Van Den Berg, 2000. "Equilibrium Search with Continuous Productivity Dispersion: Theory and Nonparametric Estimation," Working Papers 249986, Institut National de la Recherche Agronomique, France.
    3. Berg, G.J. & Ridder, G., 1993. "An empirical equilibrium search model of the labour market," Serie Research Memoranda 0039, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
    4. Pierre Cahuc & Fabien Postel-Vinay & Jean-Marc Robin, 2006. "Wage bargaining with on-the-job search: theory and evidence," Working Papers 150201, Institut National de la Recherche Agronomique, France.
    5. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-73, May.
    6. repec:dgr:uvatin:1998089 is not listed on IDEAS
    7. Matthew S. Dey & Christopher J. Flinn, 2005. "An Equilibrium Model of Health Insurance Provision and Wage Determination," Econometrica, Econometric Society, vol. 73(2), pages 571-627, 03.
    8. Wolpin, Kenneth I, 1992. "The Determinants of Black-White Differences in Early Employment Careers: Search, Layoffs, Quits, and Endogenous Wage Growth," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 535-60, June.
    9. Bontemps, Christian & Robin, Jean-Marc & Van den Berg, Gerard J, 1999. "An Empirical Equilibrium Job Search Model with Search on the Job and Heterogeneous Workers and Firms," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 1039-74, November.
    10. Jolivet, Gregory & Postel-Vinay, Fabien & Robin, Jean-Marc, 2006. "The empirical content of the job search model: Labor mobility and wage distributions in Europe and the US," European Economic Review, Elsevier, vol. 50(4), pages 877-907, May.
    11. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "Equilibrium wage dispersion with worker and employer heterogeneity," Sciences Po publications info:hdl:2441/dc0ckec3fcb, Sciences Po.
    12. 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.
    13. Postel-Vinay & Robin, 2002. "Equilibrium wage dispersion with worker and employer heterogeneity," Working Papers 155908, Institut National de la Recherche Agronomique, France.
    14. repec:dgr:uvatin:2098089 is not listed on IDEAS
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