Compensating wage differentials in the presence of employer-provided health insurance: An empirical inquiry

Background. Economic theory predicts that compensating wage differentials should exist in the presence of employer provided health insurance. However, there is very limited empirically evidence for the existence of this differential. Most studies report results that are counter to conventional economic theory, that is, employees with more health insurance appear to receive higher pecuniary compensation.; Objective. This study attempts to empirically measure the wage differential between those with varying levels of employer provided health insurance using a large nationally representative sample.; Methods. Data for this study comes from wave one of the 1990 Survey of Income and Program Participation (SIPP). The sample drawn consists of individuals with homogenous preferences for employer provided health insurance between the ages of 18 and 65. Health insurance and wages are treated as endogenous when modeling the compensating wage differential between those with fully paid, partially paid, and no paid health insurance benefits.; Results. OLS modeling suggests that employer provided health insurance is associated with higher pecuniary wages (P < 0.01). However, when controlling for the endogeneity individuals with full paid employer provided health insurance are paid less pecuniary wages than those with partial paid coverage. Significant differences are also found separately between males and females and between the young and near elderly.; Conclusions. This study reports empirical evidence of compensating wage differentials in the presence of employer provided health insurance supporting conventional economic theory.