Association for Public Policy Analysis & Management

Older workers appear to be getting the message that they need to work longer, but the rise in unemployment rates and jobless spells for older individuals indicates that employers may be apprehensive about hiring them.  In response, some economists have proposed policies that make older workers less expensive than younger workers through wage subsidies and payroll tax breaks, aimed at encouraging employers to hire older people.  This study explores the potential impact on labor demand of reducing the price of older workers.  It uses a natural experiment – the adoption of premium restrictions and other forms of community rating for small-group health insurance plans, which reduces the price of older workers working in small businesses – to estimate the labor demand elasticity with respect to the effective wage that the employer faces.  The study uses data from the Current Population Survey for 1987-2012 to estimate difference-in-differences regressions, comparing the probability of employment, the probability of working for a small employer, and wages for older versus younger workers in states with and without premium restrictions in the small group health insurance market.  Preliminary results suggest that strong premium restrictions raise employment for older workers generally, but not at small firms in particular.  In addition, workers in small firms have higher earnings when strong premium restrictions are in place, but older workers do not benefit more than younger workers.  These results suggest that policy reforms that act as wage subsidies may be effective in increasing job opportunities for older workers.