Health Insurance and the Labor Market with Wage Rigidities: Insights from a Laboratory Experiment

Most individuals who have health insurance in the U.S. obtain it through their employer. In some states the government mandates employers to provide insurance to certain types of workers. We use experimental laboratory to study how employer mandates affect labor market efficiency and the level and structure of employment in the presence of wage rigidities such as minimum wage laws. We find that a binding minimum wage reduces labor market efficiency and decreases, and may fully eliminate, voluntary provision of health insurance by firms to low wage workers. Mandating health insurance for all workers guarantees insurance coverage for those employed, but reduces firms’ demand for workers and thus leads to unemployment.