Job lock: Introduction

Ask an economist about employer-sponsored health insurance (ESI) and it won’t be long until s/he tells you it distorts the labor market. To most health economists, “job lock,” the idea that workers work more or face constraints in job mobility due to provision of work-related health insurance, is a real and important phenomenon. It’s one reason why many advocate limiting or ending the exclusion of ESI from taxation, among other reforms.

But why, you might ask, do some so firmly believe in job lock? What’s the conceptual or theoretical explanation? Where’s the evidence that it exists and is substantial? If it exists, what laws and regulations help keep it in place? Finally, how does the Affordable Care Act (ACA) begin to address it, if at all?

We’ve touched on some of these questions and their answers on this blog over the years, but never addressed them in full. That’s about to end. In a series of posts and with some help from Nick Bagley and Daniel Liebman, I will tackle these questions. Daniel’s annotated literature review lists some sources that will inform the series. I will not exhaustively cover the papers he described, but will attempt to provide a representative overview. For this purpose, I will rely most heavily on the literature reviews contained in Gruber and Madrian (2002), Fairlie, Kapur, and Gates (2011), Bradley, Neumark, and Barkowski (2013), and GAO (2011). Nick’s forthcoming post will cover the legal landscape. He has also provided helpful feedback on early drafts of my posts.

By way of overview, the nature of ESI can affect the labor market in two ways. It can affect labor force participation (LFP), by creating disincentives for retirement—particularly before the age of Medicare eligibility—and affect the decisions of secondary workers (e.g., the spouse of a family’s primary wage earner). It can also affect job choice and create disincentives for job mobility, including entrepreneurship.

Gruber and Madrian wrote a job lock literature review in 2002, covering the literature on the subject that had developed through that year. Their review, divides the literature into studies of job choice and analyses of LFP for three types of adults: older adults (near retirees), prime-aged men/married women, and single mothers. The last group is largely considered in the context of Medicaid, and the studies are more properly viewed as analyses of “welfare lock” (nonparticipation in the labor force so as to maintain eligibility for means-tested benefits). Gruber and Madrian concluded that “there is a fairly consistent case to be made that health insurance matters quite a bit for decisions such as whether to retire or to change jobs.” A systematic literature review published in 2011 by the GAO concurs with Gruber and Madrian. It found that of the 31 studies reviewed, “29 presented evidence consistent with job-lock.”

This introductory post will serve as an index to the series’ posts. All expected posts are listed below, and links will be added as they posts go live.

1. Job lock: Introduction [this post]
2. Job lock: Theory
3. Job lock: Relevant laws and regulations
4. Job lock: Labor force participation (retirement decisions)
5. Job lock: Labor force participation (married couples)
6. Job lock: Job mobility
7. Job lock: Entrepreneurship lock
8. Job lock: What the ACA does
9. Job lock: Conclusion

@afrakt