HEALTH INSURANCE AND SELF-EMPLOYMENT: EVIDENCE FROM MASSACHUSETTS

Previous studies have found that health insurance is an important component of workers' labor market decisions. In this article, the author studies the effect of health insurance availability and price on the likelihood of self-employment by examining the Massachusetts (MA) health care reform enacted in 2006. A model of compensating differentials predicts that the effect of the MA reform on the likelihood of self-employment is theoretically ambiguous because different components of the reform should have opposing effects. For a sample from the Current Population Survey, the reform leads to a large and significant increase in health insurance coverage, and it increases the likelihood of self-employment by 0.71 percentage points, or an 8.4% increase from the pre-reform average in MA. The estimated positive effect on the likelihood of self-employment persists, though decreases, in the long run. The empirical evidence suggests that a part of the decline is coming from the opposing effects of various components of the reform.