Employment Sorting by Size: The Role of Health Insurance Lan Liang and Barbara Schone

Goals of Our Analysis To add to the literature on the labor market effects of obesity To add to the literature on the labor market effects of obesity To investigate whether obesity has an impact on worker sorting To investigate whether obesity has an impact on worker sorting Two types of sorting of key interest: Two types of sorting of key interest: – Sorting by firm size – Sorting by insurance availability at a job Use similar approach to Kapur et al. (2008) Use similar approach to Kapur et al. (2008)

The Policy Relevance of Obesity According to the CDC ≈ 34% of all adults are obese (2005 – 2006) According to the CDC ≈ 34% of all adults are obese (2005 – 2006) Obesity is correlated with a number of serious health conditions Obesity is correlated with a number of serious health conditions Expected medical expenses are higher for obese individuals Expected medical expenses are higher for obese individuals

Measuring Obesity Based on Body Mass Index (BMI) Based on Body Mass Index (BMI) BMI = Weight (lb)/Height 2 (in) x 703 BMI is correlated with body fat (but not perfectly) BMI is correlated with body fat (but not perfectly)

What Do We Know about Labor Market Outcomes & Obesity? Some evidence that obesity adversely affects wages Some evidence that obesity adversely affects wages Mixed evidence that employment is affected Mixed evidence that employment is affected Obesity may adversely affect worker productivity Obesity may adversely affect worker productivity Some evidence of discrimination against obese workers Some evidence of discrimination against obese workers Many of the effects vary across men and women Many of the effects vary across men and women

How Might Weight Affect Sorting across Firms for Insurance? With higher expected medical costs, obese workers might have greater demand for insurance With higher expected medical costs, obese workers might have greater demand for insurance Higher expected medical costs might lead firms to avoid obese workers since obesity is observable (if there are no full wage offsets) Higher expected medical costs might lead firms to avoid obese workers since obesity is observable (if there are no full wage offsets) Normal weight people might find insurance less attractive and have reduced demand Normal weight people might find insurance less attractive and have reduced demand Net Effect: Insurance coverage could either increase or decrease for obese workers Net Effect: Insurance coverage could either increase or decrease for obese workers

How Might Weight Affect Sorting across Firms by Firm Size? If absenteeism is higher for obese workers, smaller firms might have a harder time adjusting to absenteeism and may be more inclined to avoid obese workers If absenteeism is higher for obese workers, smaller firms might have a harder time adjusting to absenteeism and may be more inclined to avoid obese workers Obese workers may be more attracted to firms with generous benefits (e.g., sick leave) and may be more inclined to work in large firms as a result Obese workers may be more attracted to firms with generous benefits (e.g., sick leave) and may be more inclined to work in large firms as a result Net Effect: Obese workers are expected to be more likely to be employed in large firms Net Effect: Obese workers are expected to be more likely to be employed in large firms

The Interaction of Firm Size and Insurance Large firms will also be more attractive because they are more likely to offer insurance Large firms will also be more attractive because they are more likely to offer insurance Due to greater risk-pooling opportunities, an obese worker will have a smaller effect on the pool in a large firm than a small firm Due to greater risk-pooling opportunities, an obese worker will have a smaller effect on the pool in a large firm than a small firm Net Effects: Conditional on offering insurance, obese workers may be more likely to be employed in large firms Net Effects: Conditional on offering insurance, obese workers may be more likely to be employed in large firms

Specific Research Questions How does weight affect the likelihood of being employed in a small firm? How does weight affect the likelihood of being employed in a small firm? How does weight affect the likelihood of being employed in a job that offers insurance? How does weight affect the likelihood of being employed in a job that offers insurance? Does weight affect the interaction effects of being in a small firm and being offered insurance? Does weight affect the interaction effects of being in a small firm and being offered insurance? Do the patterns differ between men and women? Do the patterns differ between men and women?

Data MEPS Full Year Data from MEPS Full Year Data from Single Employed Persons Aged Single Employed Persons Aged n = 14,150 n = 14,150 Results are weighted and adjust for the complex survey design Results are weighted and adjust for the complex survey design

Measuring BMI Based on self-reported height and weight information Based on self-reported height and weight information 4 Weight Categories 4 Weight Categories – Underweight (BMI < 18.5) – Normal (18.5 ≤ BMI < 25) – Overweight (25 ≤ BMI < 30) – Obese (BMI ≥ 30)

Key Dependent Variables Whether a worker is offered insurance from his main job Whether a worker is offered insurance from his main job Whether a worker is employed in a small firm Whether a worker is employed in a small firm – Use firm size = 25 for main results – Data report establishment, not firm size – Use establishment size and whether a firm has multi-establishments to derive a conservative measure of small firm

Descriptive Information Underweight Normal Weight OverweightObese Proportion of Workers Employed in a Small Firm All Workers MenWomen ** ** Proportion of Workers Offered Employment-Based Insurance All Workers MenWomen ***70.2***75.5**

Interactions between Firm Size and Offers Small Firm & Offered Small Firm & No Offer Large Firm & Offered Large Firm & No Offer MenUnderweightNormalOverweightObese * *** * WomenUnderweightNormalOverweightObese ** *

Key Patterns Relative to Normal Weight Persons: Obese women are less likely to work in a small firm Obese women are less likely to work in a small firm Obese workers are more likely to be offered insurance Obese workers are more likely to be offered insurance Obese workers are more likely to work in a large firm that offers insurance Obese workers are more likely to work in a large firm that offers insurance Obese men are more likely to work in a small firm that offers insurance (p <.10) Obese men are more likely to work in a small firm that offers insurance (p <.10)

Multivariate Analysis Logit Models Logit Models – Being employed in a small firm – Being employed in a firm that offers insurance Multinomial Logit with 4 Outcomes: Multinomial Logit with 4 Outcomes: – Small firm & offered – Small firm & not offered – Large firm & offered – Large firm & not offered Overall and by Gender Overall and by Gender Controls include sex, age, race/ethnicity, education, children, health status, region, MSA, unemployment, year dummies Controls include sex, age, race/ethnicity, education, children, health status, region, MSA, unemployment, year dummies

Logit Results Odds Ratios Pr (Small Firm) Pr (Offered HI) All:UnderweightOverweightObese1.74*** ** **1.37*** Men:UnderweightOverweightObese *** Women:UnderweightOverweightObese1.82***0.85***0.85*** *1.34***

Multinomial Logit Results Odds Ratios UnderweightOverweightObese Ref: Large/Offer Large/No Offer Small/Offer Small/No Offer ***1.59* **0.82* *** Ref: Large/No Offer Small/Offer Small/No Offer Ref: Small/Offer Small/No Offer ***

Key Findings from Logits Obese workers are (relative to normal weight): Obese workers are (relative to normal weight): – Less likely to work in a small firm – More likely to work in a firm that offers insurance – Small firm result is not statistically significant for men Overweight workers are (relative to normal weight): Overweight workers are (relative to normal weight): – Less likely to work in a small firm – More likely to work in a firm that offers insurance – Not statistically significant for men

Multinomial Logit Findings Relative to normal weight, obese: Relative to normal weight, obese: – Workers are less likely to be in a small firm without insurance than a small firm with insurance – Workers are less likely to be in a large firm without insurance than a large firm with insurance – Workers are less likely to be in a small firm without insurance than a large firm with insurance offered

Implications Firms that offer insurance are not avoiding obese workers Firms that offer insurance are not avoiding obese workers – Demand effects outweigh supply effects or – Maybe there is a full wage offset No statistically significant evidence that small firms are avoiding obese workers (with or without insurance being offered) No statistically significant evidence that small firms are avoiding obese workers (with or without insurance being offered) Driven by women more than men Driven by women more than men Could we observing behavior driven by normal weight workers rather than obese or overweight workers? Could we observing behavior driven by normal weight workers rather than obese or overweight workers?

Relevance Efficiency of labor markets Efficiency of labor markets Efficiency of health insurance Efficiency of health insurance

Future Steps Add married workers as an additional control group Add married workers as an additional control group Compare obesity effects to unobservable conditions Compare obesity effects to unobservable conditions Consider hires of workers and worker separations Consider hires of workers and worker separations