Health Insurance and the Labor Supply Decisions of Older
Workers: Evidence from the U.S. Department of Veterans Affairs
By
Melissa A. Boyle^
College of the Holy Cross
and
Joanna N. Laheyf^
Texas A&M University
August 2011
Abstract
Although government expansion of health insurance to older workers leads to labor
supply reductions for recipients, there may be spillover effects on the labor supply of affected
spouses who are not covered by the programs. In the simplest model, health insurance on the
job is paid for in terms of lower compensation on the job. Receiving health insurance
exogenous to employment is akin to a positive income shock for the household, causing total
household labor supply to drop. However, it is not clear within the household whether this
decrease in labor supply will be borne by both spouses or by a specific spouse. We use a
mid-1990s expansion of health insurance for U.S. veterans to provide evidence on the effects of
expanding health insurance availability on the labor supply of spouses. Using data from the
Current Population Survey, we employ a difference-in-differences strategy to compare the labor
market behavior of the wives of older male veterans and non-veterans before and after the VA
health benefits expansion to test the impact of public health insurance on these spouses. Our
findings suggest that although household labor supply may decrease because of the income
effect, the more flexible labor supply of wives allows the wife’s labor supply to increase,
particularly for those with lower education levels.
JEL Classification Codes: I11, I18, H51, J26
Keywords: labor supply, spousal employment, retirement, health insurance, Medicare, veteran
The authors would like to thank Jillian Boles for excellent research assistance. The research
reported herein was pursuant to a grant from the U.S. Social Security Administration (SSA)
funded as part of the Retirement Research Consortium (RRC). The findings and conclusions
expressed are solely those of the authors and do not represent the views of SSA, any agency of
the Federal government or the RRC.
^Department of Economics, Box 191A, College of the Holy Cross, Worcester, MA
01610-2395, 508-793-2334 (phone), 508-793-3710 (fax), [email protected]
'f'⅛exas A&M University