Selection of the fittest:Employer coinsurance and worker selection Jonas Lagerström Åbo Akademi & IFAU
Introduction • Reform in January 2005 in Sweden: Employers copayment, 15 % of full-time sick-pay. • Intended to create incentives to rehabilitate and reduce health hazard, but may also cause selection of workers with good health. • Do employers act on incentives to select the fittest in hiring and firing, when faced with a coinsurance payment?
Outcome of interest • Hiring effect: Probability of becoming employed (if unemployed) • Firing effect: Probability of becoming unemployed (if employed)
Hiring effect: Sampling • For each month (Jan 2000 – Jan 2006), I sample all registered unemployed first working day in a month and add rich register data. • Outcome measure: count days of employment per month six months after starting point.
Hiring effect: Definition of health groups • Number of days on sickness insurance (SI) 24 months before sampling point • The healthy comparison group: zero SI days. • The bad health group divided into quartiles (Q1-Q4) • within the local labor market, and • within the UI fund.
Identification • Steps in the identification: • DifferenceCompare workers with bad health with healthy workers • Difference-in-DifferencesCompare the differences between various bad-health groups • Difference-in-Differences discontinuityUse pattern in period before the reform as a comparison
Hiring effect: Difference 2 Q2 worse health than Q1
Hiring effect: Discontinuity 0 Q1 Q2 -1
Firing effects: Sampling • Data source: Statistics Sweden and Social Insurance Office register • We sample all employed 25-60 years each month • income statement, kontrolluppgift • not registered with Employment Service as unemployed • The bad health group divided into quartiles (Q1-Q4) • within the workplace • Outcome measure firing: • unemployed at least one day the sixth month after the sampling point.
Summary • Employers select based on expected health, both in hiring and firing (and in early retirement). • The effect is larger for people with a really poor health (no effect on firing for employees with relatively poor health) and largest in sector with rigid wages. • To be continued… different kind of firms, the effect on wages, on-the-job search. • Falsification test: Check for effects for groups that are suppose to be unaffected by the reform (“wild card” for certain type of individuals, e.g. people with disabilites or diseases)