Minimum Wages, Employer-Provided Health
Insurance, and the Non-discrimination Law
MINDY S. MARKS*
This article exploits cross-state variation in minimum wages to investigate the
impact of minimum wage changes on employer-provided health insurance. In
contrast to the existing empirical literature, this article considers an environment
where some firms are constrained by non-discrimination laws that govern the provision of health insurance. For these firms, minimum wage changes do not reduce
the probability that workers will receive employer-provided health insurance. For
firms not covered by the non-discrimination law, and free to tailor their fringe
benefits, low-skilled workers experience a disproportionate reduction in the availability and generosity of health insurance after a minimum wage increase.
Introduction
MOST OF THE EXISTING EMPIRICAL RESEARCH ON THE ECONOMIC IMPACTS of minimum wage laws has focused on the effects of such laws on the availability
of jobs for low-wage workers. Despite decades of study, this vast literature1
has yet to reach a consensus concerning the employment consequences of
minimum wage changes. One drawback of this focus is that it provides too
narrow a basis for policy evaluation. Employment contracts are multidimensional agreements which, in addition to providing wages, furnish workers
with numerous non-wage (or fringe) benefits, including flexible working
hours, training, health insurance, pensions, and paid leave. As long as the
wage and non-wage portion of total compensation are substitutes, firms can
respond to mandates that increase the wage portion of compensation by
reducing the non-wage component. In fact, the state of Nevada recognizes
this trade-off and allows a lower minimum wage for those firms that offer
health insurance.
* The author’s affiliation is Department of Economics, University of California-Riverside, 4110 Sproul
Hall, Riverside, CA. E-mail: mmarks@ucr.edu.
1
See Card and Kruger (1995) for an overview.
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Published by Wiley Periodicals, Inc., 350 Main Street, Malden, MA 02148, USA, and 9600 Garsington
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241
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MINDY S. MARKS
There is a small but growing empirical literature on the relationship between
the minimum wage and the provision of fringe benefits.2 A common approach
for determining the relationship between minimum wage increases and the provision of health insurance is a difference-in-differences methodology where
mid-to-high-wage workers serve as a control group to guard against unmeasured factors that may be correlated with minimum wage increases and benefit
provision. This work argues that this methodology is flawed due to enactment
of non-discrimination rules in 1978 that govern the provision of health insurance. Non-discrimination rules have been shown to limit the within-firm
inequality in benefit provision (Carrington, McCue, and Pierce 2002).
In particular, non-discrimination rules in section 105 of the Internal Revenue
Tax Code state that in order to receive tax-exempt status for the health insurance plans of highly compensated employees, self-insured firms must offer
health insurance plans that do not discriminate in favor of highly compensated
employees (Collins 1999).3,4 As Gruber (1998:7) notes, for firms covered
under the non-discrimination rules: ‘‘… it is impossible to selectively offer
insurance to only some employees, without making it a workplace wide
option.’’ This is in contrast with other fringe benefits, such as sick leave or
on-the-job training, where the firm can tailor offerings to individual workers.
For firms covered by the non-discrimination rule, all employees are potentially
affected if the firm alters its availability or generosity of health insurance in
response to a change in the minimum wage. In this case, it would be incorrect
to use employees earning above the minimum wage as a control group as is
common in the literature on the minimum wage and non-wage compensation.
Health insurance is the largest and most expensive of the non-legally
required benefits offered by firms. According to the Employer Costs for
Employee Compensation series, the average hourly cost of providing health
2
The benefit that has received the most attention is on-the-job training. Hashimoto (1982) uses timeseries variation in the minimum wage and finds support for the prediction that increases in the minimum
wage reduce on-the-job training for white men. Two recent papers have used cross-state variation in the
minimum wage to investigate this issue. Neumark and Wascher (2001) conclude that minimum wages significantly reduce the amount of training received by young workers. Acemoglu and Pischke (2003), in
contrast, do not find that minimum wages reduce the extent of training.
3
More specifically, non-highly compensated employees must constitute at least 50 percent of the group
of eligible employees; at least 90 percent of the non-highly compensated employees must be eligible for a
plan that is at least 50 percent as valuable as the plan made available to the highly compensated employee
with the most valuable benefit; and the plan must not contain any eligibility provision that suggests discrimination in favor of highly compensated employees. A plan also qualifies if at least 80 percent of non-highly
compensated employees benefit from the plan (Gruber 1998).
4
The distinction between self-insured and third-party-insured health plans is based on risk. Employers
who are responsible for the underlying insurance risk are considered self-insured even if a third-party company administers the health insurance plan. Employers have an incentive to self-insure to be exempt from
their state’s health insurance mandates.
Minimum Wages, Health Insurance, and the Non-discrimination Law / 243
insurance for workers in the private sector in 2007 was $1.85 or 7.1 percent of
total compensation (Bureau of Labor Statistics 2007). Furthermore, about 42
percent of all private sector workers without a high school education receive
health insurance through their employer. Thus, there is scope for reducing total
compensation by cutting the availability or generosity of health insurance in
response to minimum wage increases.
The minimum wage, by constraining the compensation package employers
can offer, may lower the receipt of employer-provided health insurance. However, whether or not workers lose coverage depends critically on if the firm is
subject to the non-discrimination law. Using data from the March Current Population Survey (CPS) for 1988–1993 and 1998–2005, this article exploits
cross-state variation in the minimum wage and finds employer-provided health
insurance coverage is unchanged in firms covered by the non-discrimination
law. Firms not covered by the non-discrimination law, however, can tailor their
health insurance offerings to individual employees. For these firms, reductions
in the availability and generosity of health insurance are therefore concentrated
among low-skilled workers. Furthermore, the reduction in employer-provided
health insurance is larger for those workers in predominately low-skilled industries.
Previous Literature
The idea that firms reduce the non-wage portion of compensation in response
to increases in the minimum wages has been investigated previously by Royalty
(2000) and Simon and Kaestner (2004). Both papers examine an array of benefits. The fringe benefits Royalty investigates are health insurance, pensions, and
sick leave. Using two years of data from the 1988 and 1993 CPS’s Survey of
Employee Benefits and cross-state variation in the minimum wage, she finds no
effect on fringe benefit eligibility for small increases in the minimum wage.
However, she demonstrates that minimum wage increases of at least $0.50,
decrease the probability that low-skilled workers are eligible for pensions and
health insurance.5 Simon and Kaestner include health insurance and pensions in
their analysis. They use data from the Annual Demographic Surveys of the CPS.
Both cross-state and federal changes in the minimum wage are used to identify
5
Royalty’s analysis focuses on how the minimum wage affects eligibility for fringe benefits. This article,
in contrast, focuses on how the minimum wage affects the number of workers who receive (i.e., are eligible
and accept) health insurance from their employers. As such, it implicitly includes potential channels of minimum wage influence on employer-provided health insurance that the Royalty paper does not address, such
as requiring the employee to bear a larger portion of health insurance costs or switching to less generous
plans.
244 /
MINDY S. MARKS
minimum wage effects. In the end they conclude that minimum wages have had
no discernible effect on fringe benefit provision. Under their empirical framework, the significant negative relationship they find between health insurance
and the minimum wage in some specifications is due to unmeasured state-year
factors that are correlated with the minimum wage.
This analysis differs from these papers in a key way. Both Royalty and Simon
and Kaestner employ a difference-in-differences methodology. Under this
approach the difference in fringe benefit receipt for a group of low-wage workers
likely to be affected by an increase in the minimum wage (the treatment group)
is compared to the change in fringe benefit provisions for mid-wage workers
unlikely to be impacted by the minimum wage (the control group). These authors
argue that the minimum wage has an impact on the provision of non-wage benefits if and only if the coefficient on the treatment group is more negative (less
positive) than the control group. These papers state that the methodology
depends on two key assumptions: ‘‘Obviously, this specification relies heavily on
the adequacy of the ‘control group’ and the assumption that time effects are the
same for high- and low-wage workers’’ (Simon and Kaestner 2004:56) This difference-in-differences framework is employed regardless of whether the outcome
variable is a benefit that the firm may individually tailor, like sick leave, or a benefit that is governed by the non-discrimination clause. As mentioned earlier,
however, the non-discrimination rule makes near minimum wage workers an
invalid control group when analyzing a benefit that cannot be individually tailored, such as employer-provided health insurance. Using data from before and
after the enactment of the non-discrimination rules, Vanness and Wolfe (2002)
argue that minimum wage constraints are a more important factor in determining
employer-sponsored health insurance outcomes after the non-discrimination rule
than before. Accordingly, unlike prior scholarship, this article explicitly takes
into account the role that the non-discrimination law plays in the relationship
between the minimum wage and the receipt of employer-provided health
insurance.
Empirical Specifications
This article examines the effect of the minimum wage on the availability of
employer-provided health insurance using an approach that has become standard
in the ‘‘new’’ minimum wage research.6 This approach exploits cross-state
6
Empirical studies prior to the ‘‘new’’ minimum wage research used time-series data and compared
changes in the real value of the federal minimum wage to changes in some output measure at the national
level.
Minimum Wages, Health Insurance, and the Non-discrimination Law / 245
variation in minimum wages to avoid attributing to the minimum wage influences from unmeasured variables common to all observations in a particular
state or year. States may set minimum wages higher than the federal minimum
wage. If firms respond to higher minimum wages by reducing non-wage benefits, in any given year a state with an increased minimum wage should have a
larger percentage of employees without employer-provided health insurance
than a state whose minimum wage is equal to the federal minimum wage.
Furthermore, if two states increase their minimum wage, then the state with the
larger increase should see a larger impact. This hypothesis is tested using the
following Probit model:
PðHIijt ¼ 1Þ ¼ Ffa þ b1 MWjt þ b2 Xijt þ b3 Sj þ b4 Tt þ eijt g:
ð1Þ
In equation (1), HIijt is a dichotomous variable that equals one if individual
‘‘i’’ in state ‘‘j’’ in year ‘‘t’’ receives employer-provided health insurance and
zero otherwise. MWjt is the real value of the minimum wage in state ‘‘j.’’ Xijt
is a vector of demographic and industry controls which the literature on
employer-provided health insurance (Dranove, Spier, and Baker 2000; Gruber
and Lettau 2000; Gruber and Poterba 1994; Vanness and Wolfe 2002;
Woodbury 1983) have established to be important. Included as demographic
controls are: age, age squared, race (black, white), part-time status, and education (no high school (omitted), high school graduate, some college, college
graduate, and advanced degree). Also included is a complete set of interaction
terms between marital status (married, unmarried), gender (male, female), and
presence of own children (children present, children not present). These
variables capture the possible access to insurance through a spouse, and
control for the fact that the value of health insurance is increasing with the
presence of children (Buchmueller 1996). The number of workers (0–24,
25–99, 100–499, 500–999, over 1000) in the firm and a set of 46 industry
controls capture benefit provision differences on the firm side. State unemployment rates are also included in Xijt. Sj and Tt are state and year fixed effects,
respectively. Equation (1) uses state-level variation in the minimum wage and
receipt of employer-provided health insurance from year to year to identify the
effect of the minimum wage. Federal variation in the minimum wage, which is
of larger magnitude than state variation, is subsumed by the year fixed effects.7
The state fixed effects control for any state specific time invariant variables,
7
According to Burkhauser, Couch, and Wittenburg (2000), federal variation in the minimum wage is
responsible for 90 percent of the total variation in the minimum wage between the years 1979 and 1992.
Omitting the time-specific effects enables the use of both state-year and federal variation in the minimum
wages. In estimates (not shown) that include the federal variation in the minimum wage the results are
similar but suggest that workers in large firms of all skill categories experience a small reduction in the
likelihood of receiving employer-provided health insurance.
246 /
MINDY S. MARKS
such as insurance mandates, that impact employer-provided health insurance.
Included in all specifications are education-specific time trends that allow
unmeasured factors such as rising health care costs to differentially impact
low-educated workers.8
Equation (1) can also be estimated with the minimum wage variable interacted with a complete set of skill category (high school dropouts, high school
graduates, education beyond high school) dummy variables. This alternative
regression equation can be written as follows:
PðHIijt ¼ 1Þ ¼ Ffb1 MW % NoHSijt þ b2 MW % HSijt þ b3 MW % BHSijt
þ b4 Xijt þ b5 Sj þ b6 Tt þ eijt g:
ð2Þ
In equation (2) NoHSijt, HSijt, BHSijt are mutually exclusive dummy variables
for high school dropout, high school graduate, and post-secondary education,
respectively. The Xijt vector is the same as in equation (1) and includes a full
set of education dummy variables and education-specific time trends. Equation
(2) will investigate if minimum wage increases disproportionately impact the
receipt of employer-provided health insurance for low-skilled workers. For
firms covered by the non-discrimination law any reduction of health insurance
should be similar across skill categories since these firms must offer all workers the same health insurance. For firms not restricted by the law, low-skilled
workers should be disproportionately impacted.
As previously mentioned, the non-discrimination law only affects firms that
self-insure (Collins 1999), thus firms that do not self-insure are legally allowed
to provide employees at different compensation levels different health
insurance plans or different premiums.9 The data do not identify if firms are
self-insured; however, firm size has been shown to be the best predictor for
self-insurance status. Larger firms are much more likely to self-insure than their
smaller counterparts because their large size better shields them from risk (Acs
et al. 1996). Recent data from the Medical Expenditure Panel Survey—
Insurance Component finds in 2000, 10.7 percent of firms with fewer than 100
workers offered a self-insured plan, 29.6 percent of firms with between 100
and 500 workers offered a self-insured plan, while 76.3 percent of firms with
more than 500 workers offered such a plan (Agency for Healthcare Research
and Quality 2000). In 2006 only 25 percent of firms with 100–500 workers
8
The exclusion of the education-specific time trends does little to alter the results.
There is an active consulting market where law firms advise employers how they can legally provide
different health insurance packages. See http://www.benicompselect.com/company/articles/PDF/Section_105.
pdf and http://www.millermartin.com/cgi-bin/aw/acuweb.cgi?s=mmweb&a=search&UID=26&b=articles&t=
librarydetail.htm&show=1.
9
Minimum Wages, Health Insurance, and the Non-discrimination Law / 247
offered self-insured plan whereas 80.5 percent of firms with more than 500
workers offered self-insured plans (Agency for Healthcare Research and
Quality 2006). Thus, firm size will be used as a proxy for coverage under the
non-discrimination law and equation (2) will be estimated separately for large
firms (at least 500 workers) and small firms (fewer than 500 workers).
For those small firms less likely to be covered by the non-discrimination
law we can test the following claim. Assume that the minimum wage only
affects the receipt of health insurance for low-skilled workers in firms that are
not subject to the non-discrimination law, and that it has no effect on highskilled workers in these firms. The effect of the minimum wage will therefore
be captured by the difference between coefficients b1 and b3 in equation (2).
Identifying the effect of the minimum wage in this manner guards against
picking up trends in employer-provided health insurance that affect all workers
(in small firms) and are therefore unlikely to be caused by the minimum wage
but are correlated with minimum wage changes. For large firms, governed by
the non-discrimination law, minimum wage changes can directly impact the
benefit provision for high-skilled workers and this interpretation is invalid. For
these firms any reduction in health insurance should be similar across skill levels and therefore the difference between the coefficients b1 and b3 should be
statistically insignificant.
The Data
The data for this article are drawn from the Annual Demographic Survey of
the CPS, a national survey conducted by the Census Bureau that gathers information on health insurance, labor force participation, and other socioeconomic
variables (King et al. 2009). Appended to the CPS records is information on
the state minimum wage as well as information on the state unemployment
rate drawn from the Bureau of Labor Statistics Current Local Area Unemployment Statistics. Since the CPS health insurance questions concern the previous
year’s employment, each year’s minimum wage as of January 1st is merged
with the CPS survey in year t + 1. For instance, the 2000 state minimum
wages are applied to the 2001 CPS responses (which ask respondents about
insurance in 2000).10 To be included in the sample, the respondent must be of
working age (18–64), currently working with reported earnings above zero and
10
There is some debate over the reference year for the health insurance questions in the CPS (Currie
and Yelowitz 1999). This article treats them as if they refer to the prior year’s health insurance status. These
models are equivalent to assuming that respondents provide information about current year health insurance
but that firms are only able to respond to increases in the minimum wage with a lag. Results are robust (but
lower in magnitude) to treating respondents as if their answers refer to the current calendar year.
248 /
MINDY S. MARKS
not be self-employed, a student, or in the public sector.11 Respondents from
Hawaii and Nevada are excluded because Hawaii mandates employer-provided
health insurance and Nevada allows a lower minimum wage if the firm offers
health insurance.
Analysis is conducted to focus on two separate time periods 1988–1993 and
1998–2005 where there were numerous state-level minimum wage changes
and complete information about health insurance coverage.12 Lee (1999),
Orrenius and Zavodny (2008), Royalty (2000), and Simon and Kaestner
(2004) each provide evidence that the minimum wage was binding for a subset
of workers during these time periods. In addition, there was considerable
variation in the state minimum wages during these years. Table 1 shows the
nominal minimum wage in each state that had a state minimum wage above
the federal minimum wage at some point in the sample period. In all instances
the higher minimum wage (state or federal) is used. The number of states with
a minimum wage above the federal minimum wage ranges from 3 to 14 for
the analysis years. The set of states that alter their minimum wage is not
identical across sample periods. For instance, Delaware, Illinois, and New
York had minimum wages equal to the federal minimum wage in the early
period, but had state minimum wages above the federal minimum wage in the
later period. On the other hand, Iowa, Minnesota, New Hampshire, New
Jersey, Pennsylvania, and Wisconsin had minimum wage changes in the early
period but adhered to the federal minimum wage in the later period. Thus,
these states will appear as control states in the later time period but as
treatment states in the early time period.
The key health insurance questions in the CPS are as follows: ‘‘Was [the
employee] covered by a private health insurance plan in [the employee’s] own
name?’’ If and only if the respondent answered affirmatively to this question,
11
The non-discrimination law only applies to full-time workers. One potential adjustment mechanism to
an increase in the minimum wage is to shift low-skilled workers to part-time status where benefits can be
more easily altered. Carrington, McCue, and Pierce (2002) and Wolaver, McBride, and Wolfe (1997) find
evidence consistent with firms using part-time work to skirt non-discrimination provisions. While the desire
to reduce expenditures on benefits may cause an increase in the use of part-time labor following an increase
in the minimum wage, the direction of the change is theoretically ambiguous. If part-time and full-time
workers are substitutes in production (but wages for part-time workers are lower than wages for full-time
workers) then a minimum wage increase will raise the relative price of part-time work, and part-time work
should decline (McKee and West 1984). Results, not shown, suggest that state-level changes in the minimum
wage are associated with around a 2 percentage point decrease in the likelihood of part-time work for lowskilled workers in both large and small firms. Since part-time work is potentially endogenous the author has
included all workers in the sample and a control for part-time status.
12
In 1994 only Washington increased its minimum wage. There were no state minimum wage changes
in 1995. In 1996 only Massachusetts and Vermont increased their minimum wage by 50 and 25 cents,
respectively. In addition to this, in 1994, the CPS did not collect information about what share of the health
insurance was paid for by the employer.
3.85
4.25
4.25
3.75
3.75
3.85
3.65
4.00
3.65
3.85
10
3.85
3.65
3.65
3.55
3.55
3.65
3.55
8
3.75
3.35
3.35
1989
14
4.25
3.70
4.25
3.75
4.25
3.65
4.25
3.85
3.85
3.85
3.75
3.95
3.75
11
4.25
3.85
4.25
4.75
4.25
3.85
4.30
4.25
4.25
3.80
1991
3.85
4.25
4.25
3.35
1990
4
4.45
4.75
4.65
4.75
4.25
1992
5
4.45
4.75
5.05
4.65
4.75
4.25
1993
3
6.00
5.25
5.65
5.15
1998
NOTE: All entries reflect the minimum wage as of January 1st of that year.
All entries are equal to the federal minimum wage unless otherwise noted.
SOURCES: State Labor Laws, Monthly Labor Review (Nelson various years), March CPS.
Federal
minimum wage
Alaska
California
Connecticut
Delaware
Illinois
Iowa
Maine
Massachusetts
Minnesota
New Hampshire
New Jersey
New York
Oregon
Pennsylvania
Rhode Island
Vermont
Washington
Wisconsin
All
Number above
federal minimum
wage
1988
TABLE 1
6
5.70
6.50
5.25
5.65
5.75
5.65
5.15
1999
9
5.65
5.75
6.50
6.50
6.00
5.65
5.75
6.15
5.65
5.15
2000
STATE MINIMUM WAGES
9
6.15
6.25
6.72
6.50
6.75
5.65
6.25
6.40
6.15
5.15
2001
10
6.15
6.25
6.90
6.50
5.75
6.75
5.65
6.75
6.70
6.15
5.15
2002
10
6.15
6.25
7.01
6.90
6.25
6.75
7.15
6.75
6.90
6.15
5.15
2003
11
6.75
6.75
7.16
7.05
6.25
6.75
7.15
6.75
7.10
6.15
5.50
5.15
2004
12
6.75
7.00
7.35
6.00
7.25
6.35
6.75
7.15
6.75
7.10
6.15
6.50
5.15
2005
0.473
0.612
0.477
0.474
0.439
0.421
0.475
0.488
0.396
0.386
0.412
0.456
0.601
0.421
0.504
0.494
0.532
0.397
0.474
0.423
0.542
0.395
0.414
0.423
0.501
0.481
0.408
0.458
0.406
0.392
0.416
0.519
0.428
0.483
0.453
0.426
0.418
0.468
Average
minimum
wage ⁄ median
wage
Early
Late
Minimum Wages, Health Insurance, and the Non-discrimination Law / 249
250 /
MINDY S. MARKS
TABLE 2
MEANS (AND STANDARD DEVIATIONS)
Real minimum wage
Minimum wage ⁄ average hourly wage
Percent with health insurance
Percent with health insurance (high school dropouts)
Percent with health insurance fully paid by employer
Percent with pension plan
State unemployment rate
Age
Wage
Percent with public insurance
Percent married
Percent with children
Percent African American
Percent female
Percent high school dropout
Percent some college or higher
25–99 employees
100–499 employees
500–999 employees
Over 1000 employees
Percent working part time
Observations
BY
MINIMUM WAGE
Entire
sample
State-years
above federal
minimum wage
State-years
at federal
minimum wage
2.97 (0.279)
0.472 (0.069)
61.6% (0.486)
41.5% (0.492)
16.5% (0.371)
46.3% (0.499)
5.48% (1.407)
38.56 (11.321)
21,990 (21,373)
5.1% (0.220)
59.8% (0.490)
48.4% (0.500)
10.8% (0.310)
45.8% (0.498)
12.8% (0.334)
51.1% (0.500)
15.4% (0.361)
15.9% (0.365)
6.1% (0.239)
37.8% (0.485)
11.8% (0.323)
690,377
3.41 (0.267)
0.540 (0.075)
60.9% (0.488)
38.5% (0.487)
17.6% (0.381)
44.8% (0.497)
5.55% (1.196)
38.58 (11.27)
23,212 (23,155)
5.8% (0.233)
57.2% (0.495)
47.1% (0.499)
5.5% (0.228)
45.1% (0.498)
14.2% (0.349)
54.9% (0.498)
16.3% (0.369)
16.0% (0.367)
5.9% (0.235)
35.4% (0.478)
12.7% (0.333)
138,737
2.88 (0.165)
0.456 (0.057)
61.7% (0.486)
42.3% (0.494)
16.2% (0.369)
46.7% (0.499)
5.47% (1.450)
38.56 (11.33)
21,716 (20,942)
5.0% (0.217)
60.3% (0.489)
48.7% (0.500)
11.9% (0.324)
46.0% (0.498)
12.4% (0.330)
50.2% (0.500)
15.2% (0.359)
15.9% (0.365)
6.1% (0.240)
38.4% (0.486)
11.6% (0.320)
551,640
NOTES: All monetary values are expressed in real (1982–1984 = 100) terms. The samples are weighted using population
weights. Public insurance means the workers received Medicaid, Medicare, or Champus.
they were asked the follow-up question: ‘‘Was this health insurance plan
offered through [the employee’s] current or former employer or union?’’ Thus
a positive response to both questions implies the worker has health insurance
from her employer in her own name (as opposed to being covered by a spousal plan). The nesting of the questions means it is impossible to distinguish if
a negative response to the first question implies the firm did not make health
insurance available to that employee or the firm offers health insurance but the
employee declined the firm’s coverage.13
Table 2 contains summary statistics for the entire sample (column 2), workers in state-years that have a minimum wage above the federal minimum wage
(column 3), and workers in state-years where the minimum wage equals the
federal minimum wage (column 4). State-years with minimum wages greater
13
There are datasets that allow one to distinguish between these two cases. For instance, the Employment Benefit Survey conducted periodically by the CPS contains this information. Unfortunately, this dataset
is unavailable for the years under study.
Minimum Wages, Health Insurance, and the Non-discrimination Law / 251
than the federal minimum wage account for 20.1 percent of the sample. The
coverage of employer-provided health insurance is similar across the two subsamples (60.9 percent vs. 61.7 percent). This would appear to be inconsistent
with the argument that a higher minimum wage decreases the likelihood of
receiving employer-provided health insurance. However, high school dropouts
are significantly less likely to have employer-provided health insurance in high
minimum wage state-years (38.5 percent vs. 42.3 percent). Thus, there is preliminary support for the hypothesis that firms respond to higher minimum wages
by reducing the availability or generosity of health insurance. It is clear that
workers in states with high minimum wages are not identical to their federal
minimum wage counterparts. States with higher minimum wages also tend to
have higher average wages, fewer married individuals, fewer minorities, more
educated workers, smaller firms, and more part-time workers. All of these factors, except firm size and part-time status, are correlated with higher rates of
employer-provided health insurance.
Empirical Results—Employer-Provided Health Insurance
Table 3 shows the results from estimating equation (1) for the two time periods. Since the magnitude of raw Probit coefficients are not interpretable, all tables
present marginal effects for the continuous variables and discrete changes in predicted probability for the dummy variables holding all other variables at their
means. There is little evidence that state-level increases in the minimum wage are
associated with a reduced likelihood that the average worker will receive
employer-provided health insurance. In both time periods (Panels A and B) and
for both small and large firms the estimated impact of minimum wage changes
are small and statistically insignificant. However, this specification assumes a
homogenous response to an increased minimum wage across skill levels.
As shown in column 1, the receipt of employer-provided health insurance is
much more common for workers who work in large firms. In both time periods a
worker working for a firm with over 1000 employers has almost a 30 percent
point increase in the predicted probability of receiving employer-provided health
insurance relative to his counterpart who works for a firm with fewer than 25
employees. The year fixed effects (not shown) indicate that the likelihood of
receiving employer-provided health insurance declined over both sample periods.
The relationship between education and the likelihood of receiving
employer-provided health insurance varies noticeably by firm size. As shown
in Panel A: column 3, in small firms, which have more freedom to tailor
health insurance plans to their employees, education is a strong predictor of
receipt of health insurance. In the early time period, moving from high school
252 /
MINDY S. MARKS
TABLE 3
ESTIMATES
OF THE
EFFECTS
OF
MINIMUM WAGES
All firms
Panel A: 1988–1993
Minimum wage
High school
Some college
College
Beyond college
25–99 employees
100–499 employees
500–999 employees
>1000 employees
Observations
Panel B: 1998–2005
Minimum wage
High school
Some college
College
Beyond college
25–99 employees
100–499 employees
500–999 employees
>1000 employees
Observations
ON
EMPLOYER-PROVIDED HEALTH INSURANCE
Large firms
)0.006 (0.015)
0.120 (0.018)**
0.145 (0.018)**
0.188 (0.014)**
0.189 (0.015)**
0.156 (0.004)**
0.219 (0.003)**
0.238 (0.004)**
0.308 (0.004)**
261,611
)0.018
0.070
0.085
0.118
0.107
)0.001 (0.005)
0.147 (0.024)**
0.207 (0.025)**
0.248 (0.022)**
0.257 (0.019)**
0.158 (0.004)**
0.213 (0.005)**
0.229 (0.005)**
0.284 (0.006)**
428,760
0.006
0.144
0.175
0.210
0.199
(0.013)
(0.012)**
(0.011)**
(0.009)**
(0.009)**
0.028 (0.005)**
112,246
(0.011)
(0.026)**
(0.024)**
(0.020)**
(0.016)**
0.027 (0.004)**
183,870
Small firms
0.005
0.140
0.173
0.223
0.241
0.183
0.263
(0.016)
(0.022)**
(0.025)**
(0.023)**
(0.020)**
(0.004)**
(0.004)**
149,365
)0.006
0.134
0.218
0.261
0.288
0.176
0.243
(0.010)
(0.029)**
(0.031)**
(0.029)**
(0.024)**
(0.005)**
(0.007)**
244,890
*Statistically significant at the 0.05 level; **at the 0.01 level.
Estimates were obtained using Probit model and standard errors have been corrected for clustering at the state level.
Regression models include the following additional variables: age; age squared; indicators for race, part-time status,
seven controls for family structure, forty-five industry controls, state unemployment rates, state and year fixed effects,
and year times education time trends. Results are weighted to reflect population averages. Large firm means more than
500 employees.
dropout (the omitted category) to having an advanced degree increases the
likelihood of receiving employer-provided health insurance by 24 percentage
points. For large firms (column 2) moving from the lowest education category
to the highest education category increases the likelihood of receiving
employer-provided health insurance by only 11 percentage points. The fact that
in both periods, additional educational attainment implies a larger increase in
the receipt of health insurance in small firms than in large firms is consistent
with non-discrimination laws placing additional restrictions on the ability of
large firms to offer workers with different skill levels different health insurance
offerings.14
14
The non-discrimination law does not imply complete equality in benefit provision. Even if firms
charge a common premium for health insurance, low-skilled workers may be less willing to pay the premium. In addition, firms may impose waiting periods for coverage that would again have a greater impact
on low-skilled workers due to higher turnover.
Minimum Wages, Health Insurance, and the Non-discrimination Law / 253
Table 4 reports the results from estimating models on receipt of employerprovided health insurance where the impact of the minimum wage on health
insurance is allowed to vary by skill level. Panel A presents results from
estimating equation (2) for the years 1988–1993. For the full sample of firms
(column 1), the minimum wage variable is negative and statistically significant
for workers in the lowest skill level only. The coefficient estimates suggest that
a $1.00 increase in the minimum wage would reduce the probability of receiving employer-provided health insurance by 5.1 percentage points for the average high school dropout. Minimum wage changes appear to have no impact
on the receipt of health insurance for workers in the other skill categories.
As discussed earlier, we should expect the impact of minimum wage
changes to differ by coverage under the non-discrimination law. Specifically,
for large firms (covered by the non-discrimination law), whatever changes the
firm makes to its health insurance plans must by law affect all employees. In
contrast, small firms (where the non-discrimination law does not apply) have
the freedom to focus the reduction in benefits on the group whose compensation costs are most affected by a minimum wage increase. We can investigate
TABLE 4
ESTIMATES
OF THE
EFFECTS
OF
MINIMUM WAGES
HEALTH INSURANCE
Panel A: 1988–1993
Minimum wage* no high school
Minimum wage* high school
Minimum wage* beyond high school
High school
Some college
College
Beyond college
Observations
Panel B: 1998–2005
Minimum wage* no high school
Minimum wage* high school
Minimum wage* beyond high school
High school
Some college
College
Beyond college
Observations
BY
ON
EMPLOYER-PROVIDED
SKILL LEVEL
All firms
Large firms
Small firms
)0.051 (0.017)**
)0.001 (0.013)
0.005 (0.012)
0.001 (0.058)
0.022 (0.057)
0.076 (0.053)
0.083 (0.052)
261,611
)0.033 (0.025)
)0.004 (0.016)
)0.025 (0.015)
0.031 (0.081)
0.110 (0.065)
0.139 (0.054)**
0.126 (0.047)**
112,246
)0.044 (0.022)*
0.001 (0.017)
0.031 (0.017)
0.015 (0.075)
)0.027 (0.075)
0.030 (0.075)
0.054 (0.075)
149,365
)0.030 (0.011)**
)0.007 (0.009)
0.008 (0.008)
0.074 (0.034)*
0.086 (0.031)**
0.138 (0.029)**
0.161 (0.027)**
428,760
)0.019 (0.017)
0.006 (0.012)
0.010 (0.010)
0.051 (0.051)
0.078 (0.046)
0.127 (0.041)**
0.133 (0.035)**
183,870
)0.034 (0.014)*
)0.016 (0.012)
0.007 (0.011)
0.090 (0.043)*
0.084 (0.041)*
0.133 (0.040)**
0.171 (0.038)**
244,890
*Statistically significant at the 0.05 level; **at the 0.01 level.
Estimates were obtained using Probit model and standard errors have been corrected for clustering at the state level. All
regressions include the control variables listed in Table 3. Results are weighted to reflect population averages.
Large firm means more than 500 employees.
254 /
MINDY S. MARKS
these hypotheses by estimating equation (2) separately for large and small
firms.15 Column 2 contains the results for the subsample of large firms. Coefficient estimates suggest a $1.00 increase in the minimum wage causes a 3.3
percentage point reduction for high school dropouts and a 2.5 percentage point
reduction for workers with some post-secondary education. These estimates
are not statistically different from each other or from zero. These results
suggest that a reduction in health insurance for all employees is too costly a
margin of adjustment to minimum wage changes for large firms covered under
non-discrimination laws.
In column 3 the sample is restricted to workers in firms with fewer than
500 employees. For these firms, minimum wage changes disproportionately
impact low-skilled workers. A $1.00 increase in the minimum wage reduces
the receipt of employer-provided health insurance by 4.4 percentage points for
high school dropouts and is associated with a 3.1 percentage point increase in
coverage for workers with some post-secondary education. The estimated
impact for the lowest skilled workers is significantly different than that for the
highest skilled worker at the 5 percent level. For those firms who can discriminate in their health insurance provisions, low-wage workers experience a
reduction in health insurance following minimum wage changes.
Panel B repeats the analysis for a later time period. Again, the results for all
firms suggest that low-skilled workers are less likely to receive health insurance following an increase in the minimum wage. In large firms the likelihood
of receiving health insurance is unchanged by increases in the state minimum
wage. The significant negative relationship between higher state minimum
wages and lower receipt of employer-provided health insurance appears
only for low-skilled workers in small firms who are not subject to the nondiscrimination laws.
Since the non-discrimination law requires health insurance to be altered at
the firm level, firms whose workforce is predominantly low-wage workers
should find it more attractive to adjust their health insurance plans than firms
that employ a limited number of low-wage workers. Even for firms not covered by the non-discrimination law, transaction costs may make altering health
insurance a more attractive option for firms with a large share of low-skilled
workers. To investigate this hypothesis the sample was restricted to workers in
industries where at least 15 percent of the industry workforce consists of high
15
It would not be appropriate to re-estimate equation (2) and include as additional variables the
minimum wage variables interacted with firm size dummy variables. This specification would imply that the
impact of additional education attainment is the same in large and small firms. The results in Table 3
demonstrate that the impact of education attainment (and other control variables) on the receipt of health
insurance clearly differs by firm size.
Minimum Wages, Health Insurance, and the Non-discrimination Law / 255
TABLE 5
ESTIMATES
OF THE
EFFECTS
OF
MINIMUM WAGE CHANGES
INSURANCE
IN
EMPLOYER-PROVIDED HEALTH
LOW-SKILLED INDUSTRIES
All firms
Panel A: 1988–1993
Minimum wage* no high school
Minimum wage* high school
Minimum wage* beyond high school
High school
Some college
College
Beyond college
Observations
Panel B: 1998–2005
Minimum wage* no high school
Minimum Wage* high school
Minimum wage* beyond high school
High school
Some college
College
Beyond college
Observations
ON
)0.083 (0.024)**
)0.003 (0.020)
0.050 (0.022)*
)0.062 (0.080)
)0.219 (0.084)**
)0.152 (0.086)
)0.171 (0.086)*
115,117
)0.049 (0.021)*
)0.009 (0.019)
0.006 (0.020)
0.027 (0.063)
0.054 (0.064)
0.091 (0.063)
0.093 (0.064)
89,509
Large firms
)0.052 (0.038)
0.009 (0.029)
0.011 (0.031)
)0.009 (0.126)
)0.036 (0.137)
0.027 (0.126)
0.013 (0.130)
43,916
0.014 (0.039)
0.022 (0.034)
0.015 (0.033)
0.116 (0.112)
0.176 (0.091)
0.201 (0.070)**
0.180 (0.060)**
23,592
Small firms
)0.076 (0.028)**
)0.012 (0.024)
0.069 (0.028)*
)0.037 (0.094)
)0.245 (0.087)**
)0.190 (0.087)*
)0.204 (0.082)*
71,201
)0.062 (0.023)**
)0.020 (0.021)
0.006 (0.022)
0.012 (0.069)
0.000 (0.071)
0.027 (0.072)
0.038 (0.075)
65,917
*Statistically significant at the 0.05 level; **at the 0.01 level.
Estimates were obtained using Probit model and standard errors have been corrected for clustering at the state level.
See notes in Table 3 for a list of control variables. Results are weighted to reflect population averages.
Large firm implies more than 500 employees.
Low-skilled industries are those where at least 15 percent of the workforce is not a high school graduate.
school dropouts.16 This produces a sample where 21 percent of the workforce
is a high school dropout. Table 5 presents the relationship between the minimum wage and the receipt of employer-provided health insurance for workers
in predominantly low-skilled industries. These results parallel the results in
Table 4. In large firms, covered by the non-discrimination law, the relationship
between the minimum wage and health insurance is statistically insignificant in
both time periods for all workers. In firms exempt from the non-discrimination
law, low-skilled workers are the only group whose receipt of employerprovided health insurance is negatively affected by an increase in the minimum
wage. However, the reduction in the likelihood of receiving employer-provided
health insurance is consistently larger when the sample is restricted to lowskilled industries. For instance, Panel B: column 3 shows that the average
low-skilled worker in a low-skilled industry is 6.2 percentage points less likely
to receive employer-provided health insurance following a $1.00 increase in
the minimum wage. The corresponding estimate for the average low-skilled
16
Results are robust to an alternative cut-off of 20 percent.
256 /
MINDY S. MARKS
worker in all industries (Table 3: Panel B: column 3) is a 3.4 percentage point
reduction.
In results (not shown) that focus on the subsample of high-skilled industries
(where only 8 percent of the sample is a high school dropout), the minimum
wage variable is insignificant at the 0.05 level in all specifications. Altering
the health insurance of employees is too costly a margin of adjustment in
industries without a significant low-wage population. The fact that the minimum wage variables are insignificant in these specifications suggests that there
are no unmeasured factors that are correlated with minimum wage changes
and receipt of employer-provided health insurance.
The CPS also contains information on the share of the health insurance plan
paid by the employees (all, part, or none). One mechanism for reducing expenditures on employees following minimum wage increases is to require workers
to directly bear part (or all) of the cost of health insurance. In Table 6 the
dependent variable is an indicator variable that equals one if the worker
receives a health insurance plan with no employee contribution from her firm
TABLE 6
ESTIMATES
OF THE
EFFECTS
OF
MINIMUM WAGES
ON
CONTRIBUTION FREE
EMPLOYER-PROVIDED HEALTH INSURANCE
Panel A: 1988–1993
Minimum wage* no high school
Minimum wage* high school
Minimum wage* beyond high school
High school
Some college
College
Beyond college
Observations
Panel B: 1998–2005
Minimum wage* no high school
Minimum wage* high school
Minimum wage* beyond high school
High school
Some college
College
Beyond college
Observations
All
firms
Large
firms
Small
firms
)0.049 (0.014)**
0.002 (0.009)
0.006 (0.009)
)0.084 (0.039)*
)0.075 (0.034)*
)0.065 (0.034)
)0.054 (0.033)
261,611
0.011 (0.026)
)0.003 (0.016)
0.001 (0.014)
0.059 (0.077)
0.050 (0.077)
0.051 (0.079)
0.059 (0.082)
112,246
)0.062 (0.016)**
0.005 (0.012)
0.004 (0.011)
)0.115 (0.045)*
)0.083 (0.039)*
)0.063 (0.039)
)0.047 (0.040)
149,365
)0.025 (0.008)**
)0.010 (0.006)
0.001 (0.005)
0.033 (0.033)
0.021 (0.030)
0.028 (0.032)
0.051 (0.035)
428,760
)0.020 (0.013)
0.002 (0.008)
0.006 (0.007)
)0.012 (0.053)
)0.014 (0.050)
)0.018 (0.048)
)0.001 (0.051)
183,870
)0.020 (0.009)*
)0.016 (0.007)*
)0.003 (0.006)
0.082 (0.043)
0.079 (0.042)
0.104 (0.047)*
0.141 (0.054)**
244,890
*Statistically significant at the 0.05 level; **at the 0.01 level.
Estimates were obtained using Probit model and standard errors have been corrected for clustering at the state level. All
regressions include the control variables listed in Table 3. Results are weighted to reflect population averages. Large firm
implies more than 500 employees.
Minimum Wages, Health Insurance, and the Non-discrimination Law / 257
and zero otherwise.17 The results from this analysis are similar to those
obtained when the dependent variable is simply the receipt of health insurance.
In firms covered by the non-discrimination laws, changes in the state minimum
wage have no impact on likelihood of receiving generous health insurance
coverage in either period. In small firms that have the flexibility to require
increased contributions from low-skilled workers, the likelihood of having a
health insurance plan without an employee contribution is reduced for only
low-skilled workers. For instance, the final column in Panel A implies that a
$1.00 increase in the minimum wage has no impact on the generosity of health
insurance for high-skilled workers but reduces the likelihood of receiving no
cost health insurance by 6.2 percentage points for high school dropouts in
small firms. The results in Panel B are weaker and suggest that in the later
time period firms were only slightly less likely to reduce the generosity of the
insurance offered to their low-skilled employees.
Robustness Checks
The analysis thus far has been predicated on the assumption that changes in
the minimum wage are uncorrelated with unmeasured factors that vary by
state-year and influence the receipt of fringe benefits.18 There could be unmeasured state-year factors, like economic conditions, Medicaid ⁄ AFDC eligibility,
or state policies, which may be correlated with state minimum wage increase
that drive down the generosity of the benefit package being offered by small
firms but not their large counterparts.
To correct for this potential correlation, a second minimum wage measure
was created. This new measure is the ratio of the minimum wage in each state
in a given year to the median wage for workers with a high school degree or
less in that state in that year (relative minimum wage).19 This variable captures
17
Information about generosity of workplace health insurance is only provided for individuals that
accept health insurance from their employers. Thus, the appropriate sample is all workers (as opposed to the
restricted sample of workers with employer-provided health insurance). It is possible that in response to an
increased minimum wage, employers reduce the generosity of health insurance and as result some workers
now reject their firm’s offer of insurance. This channel would be omitted if the sample were restricted to
only those with health insurance from their employers.
18
There is a small literature on the political economy of state minimum wage laws. This literature
concludes that ideological factors are the dominant force behind state minimum wage laws (Waltman and
Pittman 2002).
19
Median wage was calculated from a weighted average of the median hourly wage for full-time and
part-time workers in each state assuming full-time workers work 2000 hours a year (40 hours worked per
week times 50 weeks worked per year) and part-time workers work 1000 hours a year (20 hours per week
for 50 weeks).
258 /
MINDY S. MARKS
state-year variation in the ‘‘bindingness’’ of the minimum wage and can be
seen in Table 1. The closer the measure is to one the closer the minimum
wage is to the state’s median wage and it is more likely that employers with
low-skilled workers will change their behavior in response to changes in the
minimum wage. The set of states with the highest minimum wage differs from
the set of states with the most binding minimum wage. The six states with the
most binding minimum wages are California, Oregon, Mississippi, New
Mexico, Texas, and Arkansas. Of these only California and Oregon have a
minimum wage greater than the federal minimum wage at some point in the
sample period. Replacing the original minimum wage variable with this relative minimum wage variable is equivalent to estimating the main specification
with a different set of control states (those states with relatively non-binding
minimum wages). It is unlikely that whatever omitted factors are correlated
with living in a high minimum wage state are also correlated with living in a
state whose minimum wage has become more binding.
As a robustness check the main model (equation (2)) was re-estimated with
this new minimum wage variable for the sub-sample of low-wage industries.20
The coefficients on the key variables from this model can be found in Table 7.
The same patterns of findings emerge under this specification of the state minimum wage. For small firms, exempt from the non-discrimination law, as the
minimum wage becomes more binding, low-skill workers experience a
decrease in their likelihood of receiving employer-provided health insurance
relative to their higher-skilled counterparts. This is true in both time periods
under study. In contrast, when the relative minimum wage variable is used, the
health insurance of workers in large firms governed by the non-discrimination
law is unaffected when the minimum wage becomes more binding.21 That the
results are robust to an alternative specification of the minimum wage suggests
that there are no unmeasured factors that are correlated with state-level minimum wage changes and lowered receipt of fringe benefits in small firms.
A final robustness check investigates the receipt of employer-provided pension benefits. A weaker version of the non-discrimination law covers pension
plans but this law applies equally to small and large firms (Carrington, McCue,
and Pierce 2002). Thus, unlike health insurance, small firms are constrained to
alter the rules governing inclusion in their pension plans in a way that should
20
There is limited state-year variation in the bindingness of the minimum wage—thus results are presented for the subsample of low-wage industries where the minimum wage is most likely to have an impact.
Results for the full sample are similar in pattern but smaller in effect. In both periods there is a statistically
significant difference in the availability of health insurance between low- and high-skilled employees in
small firms.
21
Results (not shown) suggest that workers in small firms also receive less generous health insurance, as
the minimum wage becomes more binding.
Minimum Wages, Health Insurance, and the Non-discrimination Law / 259
TABLE 7
ESTIMATES
OF THE
EFFECTS
OF
MINIMUM WAGES
ON
LOW-SKILLED INDUSTRIES CONTROLLING
Panel A: 1988–1993
Relative minimum
Relative minimum
Relative minimum
Observations
Panel B: 1998–2005
Relative minimum
Relative minimum
Relative minimum
Observations
EMPLOYER-PROVIDED HEALTH INSURANCE
FOR
IN
MEDIAN HOURLY WAGE
All firms
Large firms
Small firms
wage* no high school
wage* high school
wage* beyond high school
)0.327 (0.126)**
)0.005 (0.109)
0.276 (0.126)*
115,117
)0.119 (0.169)
0.097 (0.120)
0.162 (0.129)
43,916
)0.349 (0.123)**
)0.060 (0.128)
0.321 (0.155)*
71,201
wage* no high school
wage* high school
wage* beyond high school
)0.419 (0.103)**
)0.176 (0.103)
0.089 (0.091)
89,509
0.036 (0.184)
0.127 (0.159)
0.340 (0.184)
23,592
)0.526 (0.103)**
)0.258 (0.103)*
)0.009 (0.103)
65,917
*Statistically significant at the 0.05 level; **at the 0.01 level.
Estimates were obtained using Probit model and standard errors have been corrected for clustering at the state level. All
regressions include the control variables listed in Table 3. Results are weighted to reflect population averages.
not discriminate against low-skilled workers. The results from estimating equation (2) with a dichotomous variable that reflects inclusion in the employerprovided pension plan as the outcome variable can be found in Table 8. Overall these results support a binding non-discrimination law in the provision of
pension benefits. In small firms, both high-skilled and low-skilled workers
experience a 3 percentage point decrease in likelihood of being included in
their firms’ pension plan in response to a $1.00 increase in the minimum wage
in the early period (Panel A: column 3). The corresponding reduction in likelihood of being included in the firm’s pension plan is larger for large firms
(Panel A: column 2) but, again, there is not a statistically significant difference
across the highest and lowest skill category. In Panel B there appears to be no
systematic relationship between higher state-level minimum wages and inclusion in the firm’s pension plan during the later sample periods. Unlike health
insurance, pensions—which are governed by a non-discrimination law for
small firms—show a similar change in benefit provision for both low- and
high-skilled workers following an increase in the minimum wage.
Conclusion
This article argues that rising state minimum wages create incentives for
firms to substitute between wage and non-wage benefits. Indeed, the fact that
employers may respond to increases in the minimum wage by decreasing the
availability of non-wage benefits may explain why empirical researchers find it
260 /
MINDY S. MARKS
TABLE 8
ESTIMATES
OF THE
EFFECTS
OF
MINIMUM WAGES
PENSION PLAN
Panel A: 1988–1993
Minimum wage* no high school
Minimum wage* high school
Minimum wage* beyond high school
High school
Some college
College
Beyond college
Observations
Panel B: 1998–2005
Minimum wage* no high school
Minimum wage* high school
Minimum wage* beyond high school
High school
Some college
College
Beyond college
Observations
BY
ON
EMPLOYER-PROVIDED
SKILL LEVEL
All firms
Large firms
Small firms
)0.064 (0.029)*
0.003 (0.014)
)0.036 (0.012)**
)0.066 (0.094)
0.047 (0.093)
0.092 (0.098)
0.105 (0.100)
261,611
)0.091 (0.026)**
0.011 (0.014)
)0.037 (0.017)*
)0.168 (0.069)*
)0.034 (0.075)
0.023 (0.073)
)0.006 (0.074)
112,246
)0.030 (0.030)
)0.002 (0.019)
)0.030 (0.014)*
0.013 (0.101)
0.097 (0.098)
0.127 (0.106)
0.180 (0.117)
149,365
)0.026 (0.030)
0.007 (0.011)
0.009 (0.010)
0.033 (0.094)
0.065 (0.101)
0.140 (0.099)
0.164 (0.097)
428,760
)0.054 (0.036)
)0.018 (0.012)
)0.005 (0.010)
0.016 (0.129)
)0.005 (0.133)
0.078 (0.127)
0.075 (0.123)
183,870
)0.000 (0.023)
0.024 (0.011)*
0.017 (0.009)
0.035 (0.068)
0.104 (0.073)
0.165 (0.075)*
0.217 (0.077)**
244,890
*Statistically significant at the 0.05 level; **at the 0.01 level.
Estimates were obtained using Probit model and standard errors have been corrected for clustering at the state level. All
regressions include the control variables listed in Table 3. Results are weighted to reflect population averages. Large firm
implies more than 500 employees.
difficult to detect an economically significant relationship between the minimum wage and employment.
Using data from the 1988–1993 and 1998–2005 waves of the March CPS,
this article demonstrates that state minimum wages influence the number of
individuals who receive employer-provided health insurance but the impact
depends on coverage under the non-discrimination law. For firms subject to
the non-discrimination law, it appears that the non-discrimination law is binding. Large firms do not reduce the availability of health insurance following a
minimum wage change. For uncovered small firms only low-skilled workers
experience a significant reduction in employer-provided health insurance. This
finding is in contrast to research that does not focus on the non-discrimination
law and concludes that minimum wages have no effect on the provision of
health insurance. In addition, it appears that industry composition matters.
Workers in predominantly low-skilled industries experience the largest declines
in the likelihood of receiving employer-provided health insurance following a
minimum wage increase, while the minimum wage has no impact on health
insurance for workers in high-skilled industries.
Minimum Wages, Health Insurance, and the Non-discrimination Law / 261
Finally, these findings contribute to the debate about why so many working Americans lack health insurance (Farber and Levy 2000; Field and
Shapiro 1993). The United States is unique among developed nations in its
reliance on employers to provide health insurance for the majority of its
citizens. This insurance has been implicitly subsidized by the federal government since a 1943 Internal Revenue Service ruling made compensation
in the form of health insurance excludable from taxable income. Despite
the favorable tax treatment of health insurance, the majority of uninsured
adults are in families with at least one employed worker (EBRI 2000). The
results of this article are consistent with the argument that the interaction
of the minimum wage and the non-discrimination provisions of the tax
code have the unintended consequence of reducing the receipt of employerprovided health insurance. If individuals in our society—especially
low-income individuals—are denied the advantages of subsidized health
insurance, it may be time to reexamine our reliance on employer-provided
health insurance.
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