Jay Bhattacharya and Kate Bundorf of Stanford University...

Jay Bhattacharya and Kate Bundorf of Stanford University have found evidence that people who are obese and who work for firms that provide health insurance receive lower wages than workers at those firms who are not obese. At firms that do not provide health insurance, obese workers do not receive lower wages than workers who are not obese. a. Why might firms that provide workers with health insurance pay a lower wage to obese workers than to workers who are not obese? b. Is Bhattacharya and Bundorf's finding relevant to the question of whether health insurance provides people with an incentive to become obese? Briefly explain.

Jay Bhattacharya and Kate Bundorf of Stanford University have found evidence that people who are obese and who work for firms that provide health insurance receive lower wages than workers at those firms who are not obese. At firms that do not provide health insurance, obese workers do not receive lower wages than workers who are not obese.
a. Why might firms that provide workers with health insurance pay a lower wage to obese workers than to workers who are not obese?
b. Is Bhattacharya and Bundorf's finding relevant to the question of whether health insurance provides people with an incentive to become obese? Briefly explain.

Key Concepts

Employer-Provided Health Insurance

Employer-provided health insurance is a common non-wage benefit that influences labor market outcomes. The presence of such insurance can affect the overall compensation structure, as employers may adjust wages to balance the cost of providing health care benefits, especially when certain employees are statistically more likely to incur higher health expenses.

Incentives and Moral Hazard in Health Insurance

Moral hazard in the context of health insurance arises when the security provided by coverage alters behavior. If insurance reduces the personal financial risk of costly health issues, individuals might show less incentive to maintain healthful behaviors. However, distinguishing between a wage penalty due to higher expected costs and direct behavioral incentives to become obese is crucial, as wage differences might reflect employer cost management while not necessarily implying that insurance is causing obesity.

Compensating Wage Differentials

This concept refers to the idea that employees may be paid differently based on the non-monetary attributes of their jobs. When a job offers benefits such as health insurance, employers may offset the cost of additional risks or expenses incurred by certain employees (like higher expected health care costs among obese workers) by lowering wages. This adjustment reflects the trade?off between wage compensation and the value of the other benefits provided.

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