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The Labor Market Impact of Employer Health Benefit Mandates: Evidence from San Francisco’s Health Care Security Ordinance July 6, 2011 Carrie H. Colla*, William H. Dow †, Arindrajit Dube‡ Abstract: A key issue surrounding employer benefit mandates is the incidence on workers through wages and employment. In this paper, we address this question using a pay-or-play policy implemented in San Francisco in 2008 that requires employers to either provide health benefits or contribute to a public option health plan. We estimate the impact on employment and earnings for the private sector overall, as well as for high impact sectors: retail and accommodation and food services. We develop a novel approach for individual case studies by combining both spatial discontinuity in policies and permutation-type inference using other MSAs. We find that, compared to control counties, employment and earnings patterns in San Francisco did not change appreciably following the policy. This was true for industries most affected by the mandate, as well as for overall private sector employment. The results are generally robust to inclusion of different control groups, county-specific time trends, and varying pre-periods. In contrast to the small effects on the labor market, we do find that about 25% of surveyed restaurants imposed customer surcharges, with the median surcharge being 4% of the bill. These results indicate that while little of the burden of the mandate fell on San Francisco workers, approximately half of the incidence of the mandate fell on consumers. JEL Classifications: I18, J2, J3 ___________________________ We acknowledge funding support from the Robert Wood Johnson Foundation, the University of California Labor and Employment Research Fund, and the California Program on Access to Care. * †

Dartmouth Medical School: carrie.colla@dartmouth.edu University of California Berkeley and NBER: wdow@berkeley.edu ‡ University of Massachusetts Amherst and IZA: adube@econs.umass.edu

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Introduction

Employer mandates to provide health benefits have become increasingly popular mechanisms for insurance coverage expansion, and are incorporated into many health reform proposals, including the U.S. Patient Protection and Affordable Care Act. Mandates of this type are popular because they allow policy makers to finance social policy without government funds, and in the case of a “pay-or-play” mandate such as the one in the Affordable Care Act, raise money from employers to finance coverage expansion. Economic theory and past research have suggested that in demographically identifiable groups who value the benefit at its cost, the incidence of such a mandate is likely to affect workers through reductions in wages or jobs (Gruber 1994, Summers 1989). Wage adjustment and employment effects hinge on employee valuation of the benefit and features of the labor market, such as the minimum wage or collective bargaining agreements. In addition to being of interest at a theoretical level, the impact of an employer mandate to provide health benefits is of policy relevance and the likely effect of the Affordable Care Act on jobs has been politically controversial (Pear 2011). In late 2006, San Francisco enacted ambitious healthcare legislation with a goal of attaining universal access to health care for the city’s residents. As part of the initiative, San Francisco implemented a “pay-or-play” employer mandate to finance health care for residents. This law provides a natural experiment to estimate how the labor market (employment and earnings) responds to a pay-or-play mandate. Beginning in 2008, the San Francisco Health Care Security Ordinance mandates firms with more than 20 employees to spend a minimum contribution per worker-hour on health benefits. Employers with 100 or more employees were required to contribute $1.76 per hour in health spending for each employee in 2008 (with subsequent annual increases of about 5%) while for smaller firms...
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