19 In the US, where most private health insurance coverage is provided by employers, changing employers nearly always means changing health insurance providers. Review the definition of job lock from Section 18.1. a Why might the health insurer at a new job balk at providing insurance to a job switching employee, or charge a high price? b Explain why the health insurer at the old job would not also drop coverage or charge a higher price in any given year. [Hint: Discuss the observability of any changes to the employee by insurers and legal restrictions.] c Describe the nature of the welfare loss arising from this sort of “job lock.” Be sure to consider the following question in your answer: Under what conditions can it be economically efficient for employees to quit their jobs?
Essay questions
19 In the US, where most private health insurance coverage is provided by employers, changing employers nearly always means changing health insurance providers. Review the definition of job lock from Section 18.1.
a Why might the health insurer at a new job balk at providing insurance to a job switching employee, or charge a high price?
b Explain why the health insurer at the old job would not also drop coverage or charge a higher price in any given year. [Hint: Discuss the observability of any changes to the employee by insurers and legal restrictions.]
c Describe the nature of the welfare loss arising from this sort of “job lock.” Be sure to consider the following question in your answer: Under what conditions can it be economically efficient for employees to quit their jobs?
d Consider a worker who earns substantially more than he would earn at the next available highest-paying job. Such a situation can arise even in a competitive labor market if, for example, the worker has developed a high level of firm-specific human capital, so that it would be very costly to the firm to replace him. Suppose we call this phenomenon “wage lock.” Does your discussion of the welfare loss from Exercise 19(c) apply to wage lock? Does wage lock reflect inefficiencies in the labor market?
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