Employer-sponsored health insurance is a significant component of labor costs. We examine the causal effect of health insurance premiums on firms’ employment and employment outcomes of low- versus high-income workers. To address endogeneity concerns, we instrument for insurance premiums using idiosyncratic variation in insurers’ recent losses, which is plausibly exogenous to their customers who are employers. Using Census microdata, we show that following an exogenous increase in premiums, firms reduce employment. Lower-income workers become more likely to be separated from their jobs, become unemployed, experience a large earning reduction upon job separation, and be part-time (ineligible for health insurance benefits).
