Author: Dey, Matthew ; Flinn, Christopher
Working Paper: An Equilibrium Model of Health Insurance Provision and Wage Determination (PDF) ; December 2003
Research Findings (HTML)
Abstract:
We investigate the effect of employer-provided health insurance on job mobility rates and economic
welfare using a search, matching, and bargaining framework. In our model, health insurance
coverage decisions are made in a cooperative manner that recognizes the productivity effects of
health insurance as well as its nonpecuniary value to the employee. The resulting equilibrium is
one in which not all employment matches are covered by health insurance, wages at jobs providing
health insurance are larger (in a stochastic sense) than those at jobs without health insurance, and
workers at jobs with health insurance are less likely to leave those jobs, even after conditioning on
the wage rate. We show that for inefficient mobility decisions to occur in our framework requires
that firms be heterogeneous with respect to their costs of providing health insurance. We estimate
the primitive paramters of the model using data from the SIPP 1996 panel and find that the
empirical implications of the estimated model are in accord with both the data and anecdotal
evidence. Heterogeneity in the distribution of firm costs of health insurance does lead to some
inefficient (in the short-run) mobility decisions, but the vast majority of moves from job to job are
associated with productivity improvements. |
