Nathan Dean's thesis, "Do the Pecuniary Costs of Employer-Provided Health Insurance Negatively Affect Labor Market Outcomes?," has been awarded the top senior thesis by the economics faculty.
Nathan Dean was recognized as having written the top senior thesis in the economics department. Nathan’s name will be enshrined on a plaque in the Economics Student Research Room. An abstract of his paper follows.
Projections for 2014 US healthcare inflation sit at around 6.5 percent, four times greater than that of price inflation. As health insurance costs continue to increase more rapidly than wage rates, firms may respond by adjusting their employee compensation and/or their demand for labor. The hypothesized tradeoff between employer-provided health insurance and wages is uncontroversial, yet puzzlingly difficult to prove. The small pool of economists who have found evidence of a negative relationship have estimated models plagued with weak instruments and omitted variable bias. For one, this research fails to control for individual health status, which results in a bias and overestimation of the effects of health insurance on wages. I build on previous work by adding a variable for self-reported health status. I estimate multiple two-stage least squares models with 2009 cross-sectional data from the Survey of Income and Program Participation. By introducing health status, I find no evidence that a negative relationship exists between employer-provided health insurance and wage rates. More interestingly, for above-average earners, I find a positive relationship between wage rates and employer-provided health insurance; this is coupled with an increase in total hours worked for that group. One possible explanation is that institutional factors, such as a desire to retain the best employees, prevent firms from decreasing wages for this group, despite the ever-increasing cost of health insurance.