Pyoungsik Kim

Job market paper

Labor Market Search, Illness, and the Value of Employer-Sponsored Health Insurance

Through the lens of a search model of the labor market, I investigate both the employee– and employer–side mechanisms to quantify the value of employer-sponsored health insurance (ESHI) in response to acute illness causing absenteeism. The model incorporates the medical treatment decisions of individuals and ESHI provision decisions of firms. I evaluate the importance of acute illness costs, such as deteriorated productivity, increased medical expenses, fewer job opportunities, and reduced utilities. The equilibrium proportion of firms providing health insurance is a function of labor market frictions, match-specific productivity, and endogenous illness conditions. I estimate the model using the Medical Expenditure Panel Survey (MEPS). I find that a relatively large portion (3%) of productivity is lost due to illness, and ESHI serves to enhance productivity by directly or indirectly reducing such costs. In my counterfactual experiments, I study the impacts of mandatory health insurance and employer mandate penalties on illness costs, labor market outcomes, and welfare. Higher ESHI coverage rates can reduce illness costs and improve some labor market outcomes, and there is a redistribution of welfare from firms to workers.