IngentaConnect Displaced Workers and Employer-Provided Health Insurance: Evidenc...

Abstract:

Job changes that result from plant closings and mass layoffs provide an opportunity to see how workers respond to an employment shock that is arguably exogenous to individual productivity. Comparing compensation packages of displaced workers on their old and new jobs is a potentially promising method to infer a tradeoff between wages and non-wage benefits. Although displaced worker data overcomes many of the pitfalls to estimating wage/fringe tradeoffs by controlling for time-invariant unobserved productivity, time-varying unobservables could still bias estimates. In this analysis, I investigate the compensating wage differential for one particularly valuable benefit, employer-provided health insurance. I find that even after controlling for an extensive set of productivity factors, I obtain results indicating a wrong-signed tradeoff. Those who lose health insurance through the job change also lose wages relative to other displaced workers, while those who gain health insurance also gain in wages. Individuals expected to incur higher health care costs (older workers and workers who are likely to buy family coverage) do not experience steeper wage/health insurance tradeoffs as would be expected if employers were able to pass health care costs on to workers according to individual costs. Although this exercise fails to isolate a wage/fringe tradeoff, the strong correlation between changes in wages and changes in fringe benefits has important implications for public policy towards displaced workers. Further research is needed to understand the true magnitude and distribution of the costs of job displacement taking changes in fringe benefits into account.

Keywords: job displacement; health insurance; wage-fringe tradeoff

Language: English

Document Type: Regular paper

Affiliations: 1: Assistant Professor, Department of Policy Analysis and Management, MVR Hall, Cornell University, Ithaca, NY 14853. Tel.: 607 255 7103kis6@cornell.edu

The full text electronic article is available for purchase. You will be able to download the full text electronic article after payment.

$47.00 plus tax Refund Policy

Displaced Workers and Employer-Provided Health Insurance: Evidence of a Wage/Fringe Benefit Tradeoff?