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Is Employer-Based Health Insurance a Barrier to Entrepreneurship?

Author

Listed:
  • Robert W. Fairlie

    (Department of Economics, University of California, Santa Cruz and RAND)

  • Kanika Kapur

    (School of Economics and Geary Institute, University College Dublin and RAND)

  • Susan Gates

    (RAND)

Abstract
The focus on employer-provided health insurance in the United States may restrict business creation. We address the limited research on the topic of “entrepreneurship lock” by using recent panel data from matched Current Population Surveys. We use difference-in-difference models to estimate the interaction between having a spouse with employer-based health insurance and potential demand for health care. We find evidence of a larger negative effect of health insurance demand on the entrepreneurship probability for those without spousal coverage than for those with spousal coverage. We also take a new approach in the literature to examine the question of whether employer-based health insurance discourages entrepreneurship by exploiting the discontinuity created at age 65 through the qualification for Medicare. Using a novel procedure of identifying age in months from matched monthly CPS data, we compare the probability of business ownership among male workers in the months just before turning age 65 and in the months just after turning age 65. We find that business ownership rates increase from just under age 65 to just over age 65, whereas we find no change in business ownership rates from just before to just after for other ages 55-75. Our estimates provide some evidence that "entrepreneurship lock" exists, which raises concerns that the bundling of health insurance and employment may create an inefficient allocation of which or when workers start businesses.

Suggested Citation

  • Robert W. Fairlie & Kanika Kapur & Susan Gates, 2009. "Is Employer-Based Health Insurance a Barrier to Entrepreneurship?," Working Papers 200939, Geary Institute, University College Dublin.
    • Handle: RePEc:ucd:wpaper:200939
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Self-employment; entrepreneurship; health insurance;
    All these keywords.

    JEL classification:

    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • I1 - Health, Education, and Welfare - - Health

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