[T]he costs of providing health insurance to their workers are not a competitive disadvantage for U.S.-based firms.He's done it before, and he does it again today. His goal is to demonstrate that the market sets total compensation levels, such that larger employer benefits must be accompanied by wage reductions, other things equal. Removing the burden of paying for insurance from employers would result in wage increases, leading to no net change in compensation, and therefore no net change in "competitiveness" relative to workers abroad.
In the world of clean economic models this is true, but in the real world it leaves of a lot of important caveats unmentioned. One is that foreign health systems may be (and in fact frequently are) better at containing health care costs. An employer-based system in which health insurance occupies an ever larger share of compensation is problematic in a lot of ways. When costs grow large enough, firms will find themselves needing to axe either workers or health benefits. In either case, it's not hard to imagine how economic performance might suffer, in an absolute sense and relative to other economies.
But another issue may be more important; employer-provided insurance makes it much more difficult to change jobs. Jonathan Gruber reports:
Over the past fifteen years, dozens of studies have documented the detrimental impact that job lock has on the economy. These studies typically compare the mobility of workers who are at firms with insurance but do not have an alternative source of coverage (such as spousal insurance or COBRA continuation coverage) to those who do have an alternative source of coverage should they leave the firm. The studies find that mobility is much higher when workers do not have to fear losing coverage; job-to-job mobility is estimated to increase by as much as 25 percent when alternative group coverage is available.This negatively effects entrepreneurship, as Gruber notes. It also gives employers added bargaining power in contractual negotiations, and reduces labor market efficiency and worker happiness. Economists love to talk about how labor market rigidities in Europe (read: unions) reduce economic performance. Perhaps, but on this score, the Europeans have us licked.
Certainly correct, Ryan. That's why economists of all stripes have supported ideas like Senator McCain's when he was a candidate to replace our employer-based coverage with insurance that is not lost when one changes jobs. President Obama's repeated demonization of that proposal, one which had a lot of room for compromise, really worsened my opinion of him.
Oh, and as another note Ryan, for a similar reason I strongly support education vouchers. Our "public" school system, particularly in large urban areas, determines one's schools based on how nice of a house one can afford. Plenty of workers refuse to move on the basis of having to go to worse schools; plenty of others refuse to live in urban areas or close to their jobs for the same reason.
I believe home ownership has also been shown to makes it much more difficult to change jobs. Plus, when other costs grow large enough, homeowners will find themselves needing to axe gardners, pool fellas, nannies or other expenses.
If that's true, the Federal government better purchase all the homes in America to prevent that catastrophe.
so government provided health care is "free"?
I don't have health insurance right now, but prescription costs have become increasingly difficult to manage. I started saving by switching to generic drugs by using Medtipster.
Medtipster is a search engine that allows you to type in your drug name, dosage and zip code to search for and locate prescription drugs that are available on discount generic programs across the United States; many of which are available for as little as $4. Prescriptions that are not available on a discounted program often have therapeutic alternatives on a discounted generic program, which are also available on Medtipster.com
Ryan -
I think you and Greg are talking past each other a bit. Allow me to wax nerdy for a moment and then I'll try to bring it back in.
Your point is essentially that a move to national health care could represent a productivity enhancing technological change. That is, we can achieve a more efficient distribution of resources with nationalized health care and therefore can produce more with less. This is generally what is thought of as economic growth.
Mankiw is arguing that essentially since the supply of labor is fixed an increase in productivity translates into an increase in the demand for labor which simply raises the equilibrium wage. Thus there is no long run increase in firm profits.
Both of these thing are true. In general technological change of all sorts ultimately increases wages and has little effect on the long run return to capital.
However, this is precisely what people are really interested in. When they say "more competitive business" they really mean a higher demand for labor and thus higher wages.
So I think while Mankiw is technically correct his point leaves people with the wrong impression. It sounds like he is saying that this will have no effect on the prosperity of the US but he is really saying it will have no effect on long term profits because all of the prosperity is eaten up by labor.
For the record I don't think that this misrepresentation is intentional.
I've lived in Britain, France and Germany. The usual arrangement is that healthcare is funded by
some kind of payroll tax. Private insurance is allowed, but not required, and usually buys you
privileges and conveniences (e.g. private room in a hospital rather than bed in public ward).
When I came to the US in 2000, most people in Britain used the National Health Service. There
is no serious doubt that the British system, while far from perfect, is a much more cost-effective
way of ensuring the health of the population than the US one. It has its frustrations, but, crucially,
you still have healthcare if you lose or leave your job.
Among other things, this makes a difference to artists, authors, actors and musicians. They do
not need to take absurd risks with their health and that of their families in order to devote themselves
to their callings for a while. In the U.S., the Harry Potter author J.K. Rowling, a single mum with a young child, would have been under great pressure to hold down a steady job simply in order to get health benefits. That may have led to her not writing her books, or writing something much safer and more obviously commercial.
If this generalizes, there's probably a deadening effect on creativity and innovation that goes beyond
the direct effects of employment immobility.
but, crucially, you still have healthcare if you lose or leave your job.
You do here too. There are gov't assistance programs for those that cannot afford private medical care on their own.
Would you like to tell us what economically viable govt assistance programs there are for people who can't afford private health insurance when they lose or leave their job?
One is that foreign health systems may be (and in fact frequently are) better at containing health care costs.
No doubt. That has a cost, though: gov't rationing means decreased availability of diagnostic and specialist treament. Careful what you wish for.
But another issue may be more important; employer-provided insurance makes it much more difficult to change jobs.
Probably, though I'm guessing there is more mobility among non-health-insurance-carrying jobs anyways. It's true the current system makes little sense in that regard. Of course, the system's current main goal is to shield both doctors and patients from making painful health care cost/benefit decisions. But how many people want to take the cash equivalent and pay out of pocket instead? Maybe you didn't really need that MRI, but it's easier to sleep at night when you don't have to directly trade dollars for diagnostics.
If you are uninsured and does not have insurance, you should check out the website http://UninsuredAmerica.blogspot.com - John Mayer, California