Worker Mobility and Firm Leverage: Evidence from State Health Mandates
75 Pages Posted: 9 May 2018
Date Written: May 8, 2018
We study how changes in intra-firm bargaining through mandated health insurance provision affects financing decisions of firms. We use staggered adoption of state health mandates which significantly reduced worker mobility through the provision of better health insurance coverage by firms to their employees. The resulting worker ‘job-lock’ allow firms to increase financial leverage by lowering operating costs. Consistent with this, we show that following the adoption of high-cost mandates, job turnover among workers reduces significantly, specifically for workers with employer-sponsored health insurance. Further, we find stronger effects among firms that significantly benefit more from this job-lock and subsequently respond by increasing their debt ratios. These effects are stronger for a) firms with small labor pool, b) financially constrained firms and c) firms that operate in industries with higher job mobility. Our results are robust to geographic regression discontinuity design where we focus on firms located in counties adjacent to state borders. Overall, our results are consistent with greater operational flexibility allowing firms to raise financial leverage through an increase in intra-firm bargaining power.
Keywords: Capital Structure, Health benefits, Labour cost, State health mandates
JEL Classification: G32, G38
Suggested Citation: Suggested Citation