The Patient Protection and Affordable Care Act (ACA) require all employers with at least 50 full-time equivalent workers to offer health insurance to their full-time employees or pay a fine of up to $2,000 per employee (www.hhs.gov/healthcare/rights/index.html for a description of the ACA). Some people have argued that ACA will lower employment. This problem looks at an important issue in this debate.
a. Suppose the government passes a law that requires firms to offer health insurance to their workers. The cost of the insurance is equal to $1 for each hour an employee works. How will this law affect firms’ demand for labor?
b. Suppose workers consider a dollar of health insurance paid by firms to be the equivalent of $1 in wages. How will this law affect the supply curve of labor?
c. Consider an industry where the equilibrium wage is $15 per hour and 100 workers are employed. How will this law affect the equilibrium quantity of labor in this labor market? How will it affect the equilibrium wage in this industry?
d. Now suppose workers consider a dollar of health insurance paid by firms to be worth less than $1 in wages. How will this law affect the equilibrium quantity of labor in this labor market? How will it affect the equilibrium wage in this industry?