Funding public health care: A flat-rate premium might be bad for employment

Michael T. Feil ()
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Michael T. Feil: Institute for Employment Research

Economics Bulletin, 2006, vol. 10, issue 3, 1-10

Abstract: If "tax progression is good for employment in popular models of trade union behaviour" (Koskela and Vilmunen, 1996), then a flat-rate premium, as proposed as a means of funding for public health care, is bad. This note shows that replacing existing (proportional) social security contributions by a lump-sum payment increases labour costs and thus reduces employment. This result holds - for empirically relevant parameters - even in a more general case than the one considered by Koskela and Vilmunen. Policy advisers should be aware that in imperfect competitive labour markets the prima facie attractiveness of a flat-rate premium is not for sure.

JEL-codes: H2 J5 (search for similar items in EconPapers)
Date: 2006-03-23
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