All the premium-wage trade-off literature

In light of the Cadillac tax kerfuffle, it seems like I should carefully go through all the (important) econ literature on the premium-wage trade-off.* Sure, I’ve posted about about it several times, and those posts cite some studies (Sarah Kliff’s recent post cites some of them too). But I have never systematically tried to make sense of all of them.

I don’t have time to do so quickly, but it’ll be quite a while before the Cadillac tax is repealed or modified, so slow and steady is just fine. First question: Does the list below include all the important literature? If you think I’m overlooking something worthwhile, tell me. Note that the first two entries below review literature through the mid-1990s, so I will make my life easier and not reexamine all that they cover.

Another round up of the literature, organized by finding, is here.

My plan: First, I will identify which studies examine public sector employees (teachers, government workers). In that setting, we should not expect a 1:1 premium-wage trade-off because the public sector is not in competition to the same extent as private firms. Though this has been pointed out to me several times, I’ve yet to see it mentioned in a study’s discussion. I’m curious to see if I can find a reference.

Next, I will highlight the few papers that do find a 1:1 trade-off. I know there are at least two (Baicker and Chandra 2006, Kolstad and Kowalski 2012). Are there others? Then, I will try to comment on why the others do not find a 1:1 trade-off where it is expected. This is probably for methodological or data reasons, though perhaps there are settings in which competition isn’t sufficient to produce it (?). I would hope the paper authors discuss these issues.

Finally, I will decide whether it’s important that there’s no examination of a setting in which premiums actually go down (if true). It may not be important because they may still not go down under the Cadillac tax, but just rise less quickly. In any case, is there a good reason to expect asymmetry? I’m not aware of one.

* The idea that workers pay their full employer-sponsored health insurance premiums from lower wages. When premiums go up, wages go down and vice versa. What’s held steady, all other things being equal, is total compensation.


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