How Do Health Insurance Costs Affect Firm Labor Composition and Technology Investment?

Janet Gao, Shan Ge, Lawrence Schmidt and Cristina Tello-Trillo

Working Papers from U.S. Census Bureau, Center for Economic Studies

Abstract: Employer-sponsored health insurance is a significant component of labor costs. We examine the causal effect of health insurance premiums on firms’ employment, both in terms of quantity and composition, and their technology investment decisions. To address endogeneity concerns, we instrument for insurance premiums using idiosyncratic variation in insurers’ recent losses, which is plausibly exogenous to their customers who are employers. Using Census microdata, we show that following an increase in premiums, firms reduce employment. Relative to higher-income coworkers, lower-income workers see a larger increase in their likelihood of being separated from their jobs and becoming unemployed. Firms also invest more in information technology, potentially to substitute labor.

Keywords: Health insurance; insurer losses; worker skills; firm employment; labor composition; inequality; technology investment; automation (search for similar items in EconPapers)
JEL-codes: G18 G22 G28 G31 J01 J08 J22 J23 J32 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2023-09
New Economics Papers: this item is included in nep-hea, nep-ict and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:cen:wpaper:23-47

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