EPI Study Says Premium Jumps Mean Job Loss for Low-Skilled Employees

January 24, 2006

A study released Tuesday by the Employment Policies Institute (EPI) reveals that as the cost of insurance premiums rise, pressure on businesses to keep labor costs in check results in job loss and involuntary part-time employment concentrated among low-skilled employees.

Since 2000 the cost of employer-provided insurance has reportedly increased by nearly 60 percent. This cost increase accompanies an increase in the number of uninsured in the nation.

Economists Dr. Katherine Baicker, a current member of the President’s Council of Economic Advisors, and Dr. Amitabh Chandra of Harvard University, examined the effects of increased cost of insurance premiums and found that a 20 percent increase in insurance premiums would reduce the probability of being employed by 3 percentage points — the equivalent of approximately 4 million employees nationwide losing their jobs. In addition, the job loss was concentrated among low-skilled employees.

Not only are low-skilled employees at risk for losing their job, but the authors found that this vulnerable group was more likely to experience involuntary part-time employment following an increase in premium costs. The authors found that a 10 percent increase in insurance premiums results in a wage reduction of approximately 3.4 percent, which equates to approximately a $2,000 loss in annual income, for those receiving coverage through their employer.

“We find that the cost of increases in health insurance premiums is borne in large part by workers through increased unemployment, decreased wages for those workers with employer health insurance, and decreased hours for those workers moved from full-time jobs with benefits to part-time jobs without benefits,” said the authors in their study.

“The policy implications of this study reveal the folly of attempting to provide healthcare coverage through employer mandates,” said Richard Berman, executive director of the Employment Policies Institute. “Ultimately, the cost of insurance premiums is passed on to the employees in the form of job loss or involuntary part-time employment. This unintended consequence hits the low-skilled the hardest.”

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