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Will universal health care motivate the 'job-locked' to start businesses?
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You've wanted to write a book or start a company or open a restaurant, but you've always been afraid of quitting your job and losing your health coverage. So would you be more likely to take an entrepreneurial leap if you knew you and your family's health expenses were covered, no matter what?
It's not a new question, but it's one that's being asked with more frequency now that health care reform is again on the agenda in Washington. And while research on the topic has been limited, some studies suggest that the quilt-work system of employee-paid health care is discouraging entrepreneurship.
That's because of what's known as "job lock," a bit of economics jargon that's been in vogue since the 1990s, the last time Congress and the president staged a real health reform debate. Basically, "job lock" means that you're more likely to stay in your current job, which offers health insurance, than take a chance on a startup business, where health expenses would come out of your pocket. So people are "locked" into jobs that they no longer enjoy, where they are economically unproductive, or so the theory goes.
Is "job lock" quantifiable? And does it present a real obstacle to economic growth? Some argue that health care insurance (or lack of it) isn't a statistically significant entrepreneurial deterrent, since most covered workers have the option of continuing their health coverage after they leave work, via the federal COBRA law. Others note that universal coverage doesn't exist in a vacuum -- if entrepreneurial activity ticks up, but overall economic demand ticks down because of the tax costs of universal health care, then that's bad for new entrepreneurs (as well as the old, successful entrepreneurs, who may be less inclined to take new risks with the money they've made).
But one expert makes the case that "job lock" could be unlocked by a universal plan.
"The type of universal health insurance coverage policy proposed by President Obama will clearly promote the freedom of workers to leave their jobs to start new companies," writes Jonathan Gruber, an economics professor with Massachusetts Institute of Technology. "By solving a major impediment to mobility in the U.S. labor market, a larger government goes hand in hand with more business development."
Over the past 15 years, he said, it's been shown that job lock has a detrimental impact on the economy. Job-to-job mobility will increase by as much as 25 percent if a person has another health insurance option, such as a spouse with family health coverage.
"Some of tomorrow's potential entrepreneurs are today's employees at firms that provide health insurance. They may have powerful new ideas that will build the firms of tomorrow," Mr. Gruber said. "But if they leave their current job to work on those ideas, they may find themselves without access to reliable health insurance."
Does job-to-job mobility correlate with actual entrepreneurial production; does "job lock" translate to "entrepreneurial lock?"
Perhaps. Research by Alison Wellington, a former College of Wooster economics professor, suggests that Americans with an alternative source of health insurance are more likely to be self-employed.
She estimates that a universal health care plan would increase America's self-employed ranks, now about 10 percent of the work force, by at least an additional 2 percent.
But the question isn't whether more people would leave a salaried job if they had government care.
It's whether that safety net would unlock hidden economic creativity.
There may be no way to know until the specifics of the health care reform plan are known.
"We do find some evidence that the employer-based health system does present a barrier to entrepreneurship," said Susan Gates of Rand Corp., who has researched the issue. She notes that entrepreneurial activity spikes a little bit when a cohort becomes eligible for Medicare, right at the age of 65.
"But would universal health insurance fix the problem?
We can't really answer the question based on what we've looked at," she said. "It's a really tricky thing to look at empirically."
First Published July 15, 2009 12:00 am
