Business Review


This paper uses 1996 and 2001 Survey of Income and Program Participation to examine the evidence for compensating wage differentials associated with employer-provided health insurance (EHI) in the United States. The results provide no evidence of a tradeoff between wages and EHI coverage. On the other hand, the results do suggest that employees who work in states with income taxes are more likely to receive EHI than those in states without income taxes. Fixed effects, first differencing and instrumental variable estimation are used to address the potential ability bias and endogeneity problems in wage models with EHI as an independent variable. While both fixed effects and first-differencing estimation provide evidence of a positive relationship between wages and EHI, validity tests cast doubt on fixed effects estimation. Instrumental variable estimates, however, provide no evidence of a tradeoff in either direction.


Compensating wage differentials, Employer provided health insurance, First differencing estimation, Fixed effects estimation, Instrumental variable test



Journal of Economic Literature Subject Codes

I13, I14, I15, J3

Creative Commons License

Creative Commons Attribution 4.0 International License
This work is licensed under a Creative Commons Attribution 4.0 International License.

Published Online

April 07, 2021



Publication Stage



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