Worker Sorting and Health Insurance Coverage: Evidence from Displaced Workers

Understanding the causes of the dramatic rise in health insurance costs in the United States over the past two decades is of increasing importance to employers and policymakers. While past studies focus primarily on macroeconomic developments and changes in the health sector, little attention has been paid to the changing demographics of individuals working for firms that provide health insurance. We explore the experiences of displaced workers who change jobs for arguably exogenous reasons and decompose the overall effect of health insurance on wages to observed and unobserved components. We find that while there is reduced selection bias due to observed factors, the role of selection based on unobservables has nearly doubled over the last decade suggesting that those who need health insurance shop for it.