CLA Economics
College of Liberal Arts
Twin Cities
Project Title: 
The Affordable Care Act and Labor Markets

This research consists of two sets of projects aiming to advance new literature evaluating the U.S. health insurance reform (known as the Affordable Care Act) by focusing health insurance and labor market interactions:

  • Heterogeneous Equilibrium Impacts of the Affordable Care Act across Local Labor Markets, Workers and Firms: In this project, the researchers develop and estimate a labor market equilibrium model endogenizing household labor supply adjustment and firms labor demand of skilled/unskilled workers for different jobs (full time and part-time jobs) and health insurance provision. The model incorporates rich heterogeneities across local markets, workers, and firms in order to study the welfare impact of the ACA. The researchers estimate the model using data from before and after the ACA and utilize the geographical variations of policies to identify the importance of each component of policies on those outcomes. The research addresses one of controversial aspects of the ACA, namely that it may distort firms' optimal decisions by shifting more labor inputs to part-time jobs. How much distortion the ACA imposes on the labor market and how it affects the total welfare are empirical questions yet to be answered. Specifically, the answer depends on not only on a firm's production technology but also the joint distribution of individual preference on labor supply and health insurance, both of which can be very heterogeneous across agents. The researchers are developing a strategy to identify them, exploiting geographical variations of the ACA policies.
  • The Affordable Care Act and Entrepreneurship: This project investigates the productivity impact of the ACA focusing on entrepreneurship margin. It is argued that under the pre-ACA health insurance system, entrepreneur decisions are distorted due to the lack of well-functioning individual insurance markets. One of the justifications for creating health insurance exchanges was to provide health insurance to self-employed populations, which is expected to raise labor productivity. However, such argument substantially depends on the correlation between potential ideas of businesses (or productivity) and health insurance demand. If potential entrants who did not choose self-employment due to the lack of health insurance are less productive, then the ACA can potentially reduce the labor productivity. In this project, the researchers develop and estimate a model of entrepreneurship, extending Lucas (1978) and Evans and Jovanovic (1989) to incorporate health and health insurance. They exploit geographical variations of the ACA to estimate the joint distribution of health insurance demand and entrepreneur ability, and uncover the labor productivity impact through the estimates.
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