Forthcoming Study Links Minimum Wage Hikes to Drops in Healthcare Coverage

The economics of minimum wage hikes are pretty simple: raising minimum wage costs causes employers to account for these costs in other areas. Evidence of this trend is well-documented: wage hikes have been demonstrated to cost workers their jobs, or cause a decline in scheduled hours. Employees at companies like Amazon, Target, and other companies who have surged their minimum wages up to $15 have also reported loss of key benefits, including profit-sharing options and health insurance as a result of wage hikes.

Now a new study, forthcoming in the American Journal of Health Economics published by the University of Chicago, finds minimum wage hikes across the country have had a significant negative impact on employer provided health insurance for their employees:

ABSTRACT: Economic theory suggests that a binding minimum wage increase may reduce the generosity of employer-sponsored insurance (ESI) or other fringe benefits, yet previous empirical studies reach conflicting conclusions about the existence of a tradeoff between minimum wages and ESI. We study whether recent state and federal minimum wage increases affect the level or the source of health insurance coverage for low-income families using the 2005-2016 Current Population Survey. Our research design uses state and year fixed effects to isolate within-state minimum wage changes while controlling for Medicaid eligibility and other changes in health policy related to implementation of the Affordable Care Act. Because dependent coverage might also be affected by minimum wage hikes, we examine ESI coverage for both low-wage workers and their dependents.

We find robust evidence that minimum wage increases lead to reductions in employer sponsored insurance (ESI) coverage in families below 300% FPL [federal poverty level], with a nominal $1 increase in the minimum wage reducing the probability of ESI coverage by 0.99 percentage points. Reductions in coverage were observed both for workers and for their dependents.

Access the full study here, and a write-up of the working paper here.