Labor Market Responses to Rising Health Insurance Costs: Evidence on Hours Worked

45 Pages Posted: 10 May 1998 Last revised: 1 Oct 2010

David M. Cutler

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

Brigitte C. Madrian

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

Date Written: April 1996

Abstract

Increases in the cost of providing health insurance must have some effect on labor markets, either in lower wages, changes in the composition of employment, or both. Despite a presumption that most of this effect will be in the form of lower wages, we document in this paper a significant effect on work hours as well. Using data from the CPS and the SIPP, we show that rising health insurance costs over the 1980s increased the hours worked of those with health insurance by up to 3 percent. We argue that this occurs because health insurance is a fixed cost, and as it becomes more expensive to provide, firms face an incentive to substitute hours per worker for the number of workers employed.

Suggested Citation

Cutler, David M. and Madrian, Brigitte C., Labor Market Responses to Rising Health Insurance Costs: Evidence on Hours Worked (April 1996). NBER Working Paper No. w5525. Available at SSRN: https://ssrn.com/abstract=3157

David M. Cutler (Contact Author)

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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Brigitte C. Madrian

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

79 John F. Kennedy Street
Cambridge, MA 02138
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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