Cost of Health Insurance Leads to Lower Wages, But Impact Is Uneven

Researching the incidence of employer premium payments among small firms

From 2000 to 2002, researchers from the Urban Institute, Washington, analyzed data from the long-running National Longitudinal Survey of Youth (the survey) to examine the question of whether employers pass on the cost of health insurance to their workers by offering them lower wages.

The Urban Institute is a nonprofit, nonpartisan organization that conducts research on social and economic issues.

Key Findings

  • Overall, employers pass on the cost of health insurance to their employees through reduced wages, but the trade-off between wages and health insurance is not uniform across all segments of the labor market.

  • Many small employers do not pass on the full cost of health insurance to their employees, particularly those employers in labor markets where small and large firms compete for the same workers.

  • In labor markets where employees tend to remain with the same employer over time, employers are less likely to pass on the cost of health insurance through reduced wages.