Labor Market Responses To Rising Health Insurance Costs: Evidence On Hours Worked

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 a significant effect on work hours as well. Using data from the Current Population Survey (CPS) and the Survey of Income and Program Participation (SIPP), we show that rising health insurance costs during the 1980s increased the hours worked by those with health insurance by Lip to 3%. 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.