The Labor‐Market Impact of San Francisco's Employer‐Benefit Mandate

• Author: William H. Dow,Arindrajit Dube,Carrie H. Colla
• Published date: 01 January 2017
• DOI: http://doi.org/10.1111/irel.12166
• Date: 01 January 2017

The Labor-Market Impact of San Francisco’s

Employer-Benefit Mandate*

CARRIE H. COLLA,WILLIAM H. DOW and ARINDRAJIT DUBE

We evaluate a San Francisco policy requiring employers to provide health bene-

fits or contribute to a public-option health plan to better understand the incidence

of employer mandates through their effects on wages, employment, and prices.

We develop an individual case study approach combining border discontinuity in

policies and permutation-type inference using other metropolitan areas. Findings

indicate that employment patterns did not change appreciably following the pol-

icy, and there is little evidence of significant negative earnings in highly impacted

sectors. However, approximately half of the incidence of the mandate in the

restaurant sector fell on consumers via surcharges.

Introduction

Employer mandates to provide health benefits have become increasingly

popular mechanisms for insurance coverage expansion, and are incorporated

into many health-reform proposals, including the U.S. Patient Protection and

Affordable Care Act. Mandates of this type are popular because they allow

policy makers to finance social policy without government funds, and in the

case of a “pay-or-play”mandate such as the one in the Affordable Care Act,

raise money from employers to finance coverage expansion. “Pay-or-play”

mandates require firms to pay a fine or provide health insurance coverage for

employees. Economic theory and past research have suggested that in demo-

graphically identifiable groups who value the benefit at its cost, the incidence

of such a mandate is likely to affect workers through reductions in wages or

jobs (Gruber 1994; Summers 1989). Wage adjustment and employment effects

hinge on employee valuation of the benefit and features of the labor market,

such as the minimum wage or collective bargaining agreements. In addition to

*The authors’affiliations are, respectively, The Dartmouth Institute for Health Policy and Clinical Practice,

Lebanon, New Hampshire. E-mail: carrie.h.colla@dartmouth.edu; University of California, Berkeley, Berke-

ley, California. E-mail wdow@berkeley.edu; and University of Massachusetts Amherst, Amherst, Mas-

sachusetts. E-mail: adube@econs.umass.edu.

JEL: I1, J2, J3.

INDUSTRIAL RELATIONS, Vol. 56, No. 1 (January 2017). ©2016 Regents of the University of California

Published by Wiley Periodicals, Inc., 350 Main Street, Malden, MA 02148, USA, and 9600 Garsington

Road, Oxford, OX4 2DQ, UK.

122

being of interest at a theoretical level, the impact of an employer mandate to

provide health benefits is of policy relevance and the likely effect of the

Affordable Care Act on jobs has been politically controversial (Pear 2011).

In late 2006, San Francisco enacted ambitious healthcare legislation with a

goal of attaining universal access to healthcare for the city’s residents. As part

of the initiative, San Francisco implemented a “pay-or-play”employer mandate

to finance healthcare for residents. This law provides a natural experiment to

estimate how the labor market (employment and earnings) responds to a pay-

or-play mandate. As with national proposals, there was robust debate in San

Francisco regarding the potential adverse employment effects of the mandate,

with some employer interest groups claiming from anecdotal evidence that the

mandate caused significant job loss in certain sectors such as restaurants (see

for example, Westlye 2007). Such claims have important implications for pol-

icy debates and merit detailed examination.

Beginning in 2008, the San Francisco Health Care Security Ordinance man-

dates firms with more than twenty employees to spend a minimum contribu-

tion per worker-hour on health benefits. Employers with one hundred or more

employees were required to contribute $1.76 per hour in health spending for

each employee in 2008 (with subsequent annual increases of about 5 percent)

while for smaller firms of between twenty and ninety-nine employees the

hourly requirement was $1.17 (San Francisco Office of Labor Standards

Enforcement 2016). This benefit represented a 13–19 percent increase over

San Francisco’s 2008 minimum wage of $9.36, so it is a substantial require-

ment—more stringent than the requirements in the Affordable Care Act or the

employer “fair share”requirement that began in Massachusetts in 2007. It is

similar in magnitude to the mandate in Hawaii (although Hawaii is not a pay-

or-play mandate). Employers can meet this requirement by paying for insur-

ance directly, paying into medical reimbursement accounts, or by paying into

the city’s“Healthy San Francisco”public option, which offers heavily subsi-

dized access to care.

1

Colla, Dow, and Dube (2011) found that although more

than 90 percent of San Francisco firms with twenty or more employees offered

insurance prior to implementation of the law, about 75 percent of firms needed

to increase health spending to meet the ordinance’s requirements. The same

study found that many firms chose to “play”by expanding benefit generosity,

but about 18 percent of firms chose to “pay”into the city’s Healthy San

1

San Francisco’s mandate varies from the traditional definition of a “pay-or-play”mandate and the fed-

eral Affordable Care Act in that the “pay”portion directly benefits the employee and is not general tax rev-

enue. The distinction is relevant for the legal question of which mandates are preempted by the Employee

Retirement Income Security Act of 1974 (ERISA). In this paper, we use the terms “pay-or-play mandate”

and “employer health-benefit mandate”interchangeably.

Labor Market Impact of Benefit Mandate / 123

Francisco public option for at least some of their employees. The present paper

builds on this research to estimate the impact of these changes in health bene-

fits on jobs, earnings, and cost to consumers over the first 27 months of imple-

mentation.

One problem with case studies of policies affecting few units (in this case,

one county) is the difficulty of constructing reliable control groups and form-

ing credible inference. In this paper, we develop a novel approach to address

both of these problems by merging recent methodological developments—a

border discontinuity design, and permutation-type inference as developed by

Conley and Taber (2011). Thus, we include plausible local controls (e.g., Card

and Krueger 1994; Dube, Naidu, and Reich 2007) while addressing the prob-

lem of improper inference (Donald and Lang 2007). We use a border disconti-

nuity approach to identify the effects of the employer mandate on labor-market

outcomes, comparing San Francisco to other counties within the broader

metropolitan area. The Conley–Taber approach to inference uses asymptotic

approximations that let the number of control units grow large, while the num-

ber of treated units remains small. Thus, we consider other top 25 metro areas

to account for the possibility of differential trends by city center and periph-

eries and to consistently estimate the distribution of the treatment effect.

In general, we rule out all but small effects on overall private-sector

employment after more than 2 years of mandate implementation. We also con-

sider high-impact sectors such as accommodation and food services, and fur-

ther consider restaurants as a subsector with particularly large treatment

intensity. The range of estimates from alternative samples and specifications

point to nonsignificant or small positive employment effects in the restaurant

and accommodation and food services sectors, with more mixed results in

retail. Estimated earnings effects are more sensitive to specification. For all pri-

vate earnings there is an indication of a negative effect when using a longer

pre-intervention sample but a positive estimate for the shorter sample—thus

we must be more circumspect regarding earnings estimates for the private sec-

tor as a whole. However, earnings effects in the higher impact accommodation

and food services sector tend to be small and less sensitive to specification.

We find that across eight specifications, at most only $0.13 per hour (22 per-

cent of the industry gap in spending at baseline) is passed through to earnings

in a high-impact sector like the restaurant industry, and we can statistically

rule out pass-through of more than $0.51 per hour (82 percent pass-through of

the gap) across all eight specifications, with our preferred estimate implying

just 6 percent pass through in this initial 2-year period postimplementation.

The low pass-through to wages in the restaurant industry is likely due to a

combination of a relatively high proportion of workers close to the minimum

wage, and the potential for pass-through to consumer prices. In a survey that

124 / CARRIE H. COLLA,WILLIAM H. DOW AND ARINDRAJIT DUBE