The Effect of Mandatory Employer-Sponsored Health Insurance on the Use of Part-Time versus Full-Time Workers: The Case of Hawaii.
- Presenter:
Chair: David Bradford; Discussant: David Bradford Wed June 7, 2006 8:00-9:30 Room 213
Authors: Sang-Hyop Lee (leesang@hawaii.edu), Gerard Russo (russo@hawaii.edu), Lawrence H. Nitz (lnitz@hawaii.edu), Abdul Jabbar (jabbar@hawaii.edu), Rui Wang (ruiw@hawaii.edu) and Thamana Lekprichakul (thamana@hawaii.edu), University of Hawaii.
Title: The Effect of Mandatory Employer-Sponsored Health Insurance on the Use of Part-Time versus Full-Time Workers: The Case of Hawaii.
Overview: The Hawaii Prepaid Health Care Act (PHCA) of 1974 is a unique law which requires private-sector firms to provide health insurance to their employees working at least 20 hours per week. It represents a natural experiment which is ideally suited for an investigation of the impact of mandatory ESI on labor force utilization with particular emphasis on part-time and full-time workers.
Hypotheses: The Hawaii 20-hour rule is thought to have two possible effects on the distribution of the workforce by hours worked. First, firms may seek to employ more part-time workers a legal avoidance of the mandated labor expense associated with ESI. Alternatively, we hypothesize an effect in the opposite direction. This arises from the recognition that mandated ESI represents a fixed-cost per employee per month. The lump-sum nature of health insurance premiums implies the incremental cost of utilizing a full-time worker more intensely is absent any additional ESI expense. This second hypothesis states that mandatory ESI will shift the distribution of equilibrium employment by hours worked towards full-time workers, implying total labor utilization will rise but total employment will fall. We conduct an empirical investigation of these hypotheses.
Data & Method: We produce direct and model-based estimates of the distribution of employees by hours-worked, using 12-years of the Current Population Survey (CPS), Basic Monthly Survey and Annual Social and Economic (ASEC) Supplement 1994-2005. These are estimates of employment patterns for working age adults for Hawaii, the U.S. as a whole and several comparative States including Nevada, Michigan, California and Florida controlling for worker characteristics and industrial structure. We treat the Hawaii distribution as the factual and the U.S., Michigan, Nevada, California and Florida distributions as the counter-factual.
Results: We find utilization of employees working between 20 and 35 hours per week, is reduced under Hawaii’s employer mandate. We also find that mandated ESI increases the proportion of part-time workers (i.e., less than 20-hours per week) and also increases the utilization of labor from full-time workers above 36-hours per week. Generally, the shifts in the distribution of labor force are modest but statistically significant.
Conclusion: Mandating ESI will increase the cost of labor for many firms who would not otherwise provide coverage and reduce cash wages as a proportion of total compensation. The equilibrium response is two-fold. First, more part-time employment will result as employers and employees legally avoid the mandate. Second, employers will utilize full time workers more intensely by increasing hours, thereby shifting the upper distribution of employees by hours worked further to the right. On net, the distribution of employment by hours worked will be “hollowed out” in the 20-35 hour range as these employees are the relatively most expensive to employ under a Hawaii 20-hour mandate.
