NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Who Pays for Public Employee Health Costs?

Jeffrey Clemens, David M. Cutler

NBER Working Paper No. 19574
Issued in October 2013
NBER Program(s):   AG   ED   HC   LS   PE

We analyze the incidence of public-employee health benefits. Because these benefits are negotiated through the political process, relevant labor market institutions deviate significantly from the competitive, private-sector benchmark. Empirically, we find that roughly 15 percent of the cost of recent benefit growth was passed onto school district employees through reductions in wages and salaries. Strong teachers' unions were associated with relatively strong linkages between benefit growth and growth in total compensation. We further find that when economic conditions are poor, straining public budgets, benefit growth is more readily shifted back to public employees. Our analysis is consistent with the view that the costs of public workers' benefits are difficult to monitor, contributing to benefit oriented, and often under-funded, compensation schemes.

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Document Object Identifier (DOI): 10.3386/w19574

Forthcoming: Who Pays for Public Employee Health Costs?, Jeffrey Clemens, David M. Cutler. in State and Local Health Plans for Active and Retired Public Employees, Clark and Newhouse. 2014

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