The effects of job lock

THE EFFECTS OF JOB LOCK…. When making the case for health care reform, it’s often hard to know where to start, and what to emphasize. To his credit, President Obama frequently tries to make the point about the ways in which the status quo undermines businesses and entrepreneurship.

In his address to a joint session a couple of weeks ago, for example, while emphasizing rising costs, the president reminded lawmakers, “It’s why so many employers — especially small businesses — are forcing their employees to pay more for insurance, or are dropping their coverage entirely. It’s why so many aspiring entrepreneurs cannot afford to open a business in the first place, and why American businesses that compete internationally — like our automakers — are at a huge disadvantage.”

Andrew Sullivan heard from a reader who helped drive the entrepreneurship point home.

I’m an American who has also decided to leave the US … because of my concerns over healthcare. You see, my European wife has a chronic disease that worsened soon after we moved to the U.S. two years ago. I have insurance, but with a sick wife and two children, our bills are quite high. Worse, should I ever change jobs, or get fired, I have no doubt our insurer would drop us, or at least dramatically increase our premiums.

I’m a senior exec in a software company. I’ve always wanted to run my own company, and I have an idea that I think will work.

But we’ll move back to Europe before I take that risk. In the U.S., I just cannot be without healthcare for any length of time. I wonder how many other potential entrepreneurs are discouraged from striking out on their own for this very reason?

At the Washington Monthly, we wondered the same thing.

In May, we ran a great item on this from MIT economic professor Jonathan Gruber in a special feature on entrepreneurship. Gruber’s piece detailed the problem of “job lock,” the phenomenon that traps workers in a job that offers health coverage, and prevents many small businesses from even opening.

Over the past fifteen years, dozens of studies have documented the detrimental impact that job lock has on the economy. These studies typically compare the mobility of workers who are at firms with insurance but do not have an alternative source of coverage (such as spousal insurance or COBRA continuation coverage) to those who do have an alternative source of coverage should they leave the firm. The studies find that mobility is much higher when workers do not have to fear losing coverage; job-to-job mobility is estimated to increase by as much as 25 percent when alternative group coverage is available. […]

There are fewer direct studies of the impact of job lock on entrepreneurship. But the most convincing research, by Alison Wellington, mirrors the findings of other job mobility studies: Americans who have an alternative source of health insurance, such as a spouse’s coverage, are much more likely to be self-employed than those who don’t. Wellington estimates that universal health care would therefore likely increase the share of workers who are self-employed (currently about 10 percent of the workforce) by another 2 percent or more. A system that provides universal access to health insurance coverage, then, is far more likely to promote entrepreneurship than one in which would-be innovators remain tied to corporate cubicles for fear of losing their family’s access to affordable health care.

Ezra Klein, after noting Gruber’s piece, also raised an important point: “It’s also unclear how internalized this is: We may just have a culture in which people who care about health-care coverage don’t think about becoming entrepreneurs, as they know perfectly well that they can’t sacrifice the safety provided by a large employer. You’ve heard of learned helplessness? This is learned corporatism. A culture in which people didn’t worry about health-care costs might also be a culture in which they were more willing to consider occupational risks.”

From a purely political perspective, the Republican Party has tried to position itself as champions of small businesses and entrepreneurs. In this sense, they should be the leading champions of health care reform — it’s a hindrance on innovation and Americans’ ability to compete on the global stage.