Many employers provide health insurance for their employees, but others—primarily small employers—do not. Suppose that the government wants to ensure that all employees are provided with health insurance coverage that meets or exceeds some standard. Suppose also that the government wants employers to pay for this coverage and is considering two options:

Option A : An employer not voluntarily offering its employees acceptable coverage would be required to pay a tax of X cents per hour for each labor hour employed. The funds collected would support government-provided health coverage.

Option B : Same as option A, except that the government-provided coverage would be financed by a tax collected as a fraction of the employer’s total revenues. Compare and contrast the labor market effects of each of the two options.