GENDER DIFFERENCES IN THE VALUATION OF EMPLOYER-PROVIDED HEALTH INSURANCE

I. INTRODUCTION Based on the seminal compensating wage differential work of Rosen (1986), a considerable number of empirical studies have analyzed the effect of employer-provided health insurance on various forms of potential "job lock," such as decisions to retire, to change jobs, to participate in the labor market and the extent of participation (full time/part time), and to move from receiving public assistance to the workforce. (1) Though employer-provided health insurance is the most significant source of health insurance in the United States, about 65% of all sources, its effects on wages have not received due attention and the empirical validity of such effects has not been established. As noted by Currie and Madrian (1999), estimates of the wage/employer-provided health insurance trade-off in most studies exhibit a positive sign, are statistically insignificant, or both. The most recent research has also generated diverse results. Simon (2001) investigated the trade-off by concentrating on displaced workers. She found a positive sign for the trade-off and concluded that unobserved worker effects do not cause bias and that the more important cause of the bias reflects job and the job match. That is, jobs are either good or bad jobs, with good jobs having higher pay and higher benefits at the same time. Kaestner and Simon (2002) examined the labor market consequences of state-mandated health insurance benefits and small-group health insurance reforms during the late 1990s. They found no evidence of a trade-off between wages and health insurance costs and suggested the possibility that increased insurance costs were passed on to workers through higher employee contributions to premiums. Olson (2002) concentrated on a sample of married women and accounted for the endogeneity of choice between jobs with and without health insurance but did not account for insurance cost sharing such as out-of-pocket premiums, "health-care need" variables, or job characteristics. He found a trade-off of about 20%. The existing literature also indicates a gender differential with respect to health-care utilization and expenditure (Manning and Mullahy, 2001) and employer-provided health insurance premiums (Jensen and Morrisey, 1990). In addition, there is a possibility of gender discrimination due to mandated health insurance provision (Gruber, 1994). Furthermore, health insurance can create labor market distortions, resulting in job locks, rent for some workers, and pay discrimination. These factors may contribute to gender differentials in earnings/health insurance trade-off and raise the possibility that Olson's finding may overestimate the trade-off for the entire labor force. This study makes three substantive contributions to the literature. First, we isolate the effect of job characteristics, insurance cost sharing as measured by out-of-pocket premiums, and health-care need variables that confound the effect of employer-provided health insurance on annual earnings. We do this by using the 2001 Medical Expenditure Panel Survey (MEPS) data and its recently released supplementary files. Second, by accounting for the endogeneity of choice between jobs with and without health insurance and by utilizing possession of family coverage policy as an alternative source to own employer-provided insurance, we expand Olson's model to separate samples of married men and married women and investigate potential differentials in valuation/cost of employer-provided health insurance between the genders. Third, we estimate the effect of employer-provided health insurance on the size and composition of the gender-earning differentials. Our results show that failure to control for heterogeneity as well as for endogeneity will understate the size and the statistical significance of the tradeoff. A gender-trade-off differential exists of about 3.5%, explaining about 3% of the gender-earning differentials. Health insurance does not contribute to the unexplained portion of the gender-earning gap. …