Observations on Employment-Based Government Mandates, With Particular Reference to Health Insurance

Abstract

This paper provides several observations on the impact of employment-based government mandates on job characteristics, wages, and employment. Special attention is devoted to evaluating the effects of mandated health insurance because health care is the largest government mandate potentially on the horizon. In some situations, mandates may be useful to solve adverse selection problems, and to compel firms to internalize the social costs, of production. Moreover, in a world with pre-existing distortions, mandates may reduce other inefficiencies. However, it is concluded that in many situations the optimal way for a government to assure that services are provided is probably not through employment-based mandates. In many situations, mandates are utilized because alternative schemes are politically infeasible. Nevertheless, since the labor supply curve is widely believed to be fairly inelastic, in the long run employers’ costs of meeting government mandates are likely to be shifted to employees in the form of lower wages. Cost shifting to employees is expected to moderate the reduction in jobs due to government mandates.