Who Pays for Public Employee Health Costs?

59 Pages Posted: 25 Oct 2013

See all articles by Jeffrey P. Clemens

Jeffrey P. Clemens

University of California, San Diego (UCSD) - Department of Economics; NBER

David M. Cutler

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); Harvard University - Harvard Kennedy School (HKS)

Date Written: October 2013

Abstract

We analyze the incidence of public-employee health benefits. Because these benefits are negotiated through the political process, relevant labor market institutions deviate significantly from the competitive, private-sector benchmark. Empirically, we find that roughly 15 percent of the cost of recent benefit growth was passed onto school district employees through reductions in wages and salaries. Strong teachers' unions were associated with relatively strong linkages between benefit growth and growth in total compensation. We further find that when economic conditions are poor, straining public budgets, benefit growth is more readily shifted back to public employees. Our analysis is consistent with the view that the costs of public workers' benefits are difficult to monitor, contributing to benefit oriented, and often under-funded, compensation schemes.

Suggested Citation

Clemens, Jeffrey P. and Cutler, David M., Who Pays for Public Employee Health Costs? (October 2013). NBER Working Paper No. w19574. Available at SSRN: https://ssrn.com/abstract=2345068

Jeffrey P. Clemens (Contact Author)

University of California, San Diego (UCSD) - Department of Economics ( email )

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HOME PAGE: http://econweb.ucsd.edu/~j1clemens/

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David M. Cutler

Harvard University - Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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Harvard University - Harvard Kennedy School (HKS) ( email )

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United States

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