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  • Writer's pictureDavid Wolfe Bender

Working Paper and Evidence Review: Entrepreneurship Lock

Photo Credit: Daniel Thomas, Unsplash

Economists intently study the effect of employer-sponsored insurance (ESI) on "job lock." The central theory is that some employees may choose to stay in their jobs solely because of the fear of losing the health insurance that is provided from their employer.

They'll make the decision to stay even when they might prefer to leave their job to find a better one. This can lead to inefficiency through the limitation of career options. It can also force people into job dissatisfaction. The bottom line: "job lock" occurs when people feel "trapped" in their current job.

There are loads of economic studies that show the effect of job lock — particularly focused on health insurance. In 2015, the AARP — the nation's leading interest group for older Americans — provided a document that conglomerates many of those studies. It is a few dozen pages long.

As part of my ECON-E 341: Economics of Labor Markets course this semester, I completed an evidence review for one of the specific studies that the AARP cited in its document.

The study, published by the RAND Corporation in 2011, was written by Robert Fairlie, Kanika Kapur, and Susan Gates. It focused on the effect of job lock on entrepreneurship; to date, it is one of the only studies I could find that focuses on the effect of employer-sponsored insurance on the probability a person will leave their job to start a business. To draw its conclusions, it uses the Current Population Survey — sponsored by the U.S. Census Bureau and the Bureau of Labor Statistics.

In my evidence review, I specifically tie the results to the United States healthcare system and compare it to the healthcare system in other developed countries. Specifically, I look to Israel as a template. Israel boasts some of the highest startup rates per capita in the world.

Sidenote: this paper is still a working paper, meaning it could be edited or expanded upon in future versions. Do you have questions? Advice? Suggestions? Contact me.

Entrepreneurship Lock and Employee-Sponsored Health Insurance
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Conclusion: while we do not know if national health insurance would actually lead to better entrepreneurship outcomes, we do know that there is some limited evidence of entrepreneurship lock.

This study does give some insight into how healthcare creates an “entrepreneurship lock.” If economists accept — as our government has — that entrepreneurship creates significant value to society, we should do everything in our power to help them succeed. Getting rid of that lock might be a first step.

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