The effects of state and federal mental health parity laws on working time in the US

Abstract

This paper provides new empirical evidence on the impacts of state and federal mental health parity laws on related labor market outcomes, particularly working time. The mandated benefits for mental health in the US drive up the costs of providing health insurance substantially. In response, employers may avoid hiring more full-time workers, whose compensation includes health insurance, by increasing working time per worker and reliance on part-time employment; employees may also have an incentive to increase their labor supply to qualify for the benefits. Using individual-level data from the Current Population Survey 1992–2010 and exploiting policy variation by state and year, we find state parity laws increase average weeks worked by 1.4 percent (47.56 weeks as the baseline). Since self-insured firms are exempted from state regulations, parity is estimated to have nearly twice as large an effect on small firms as it does on large firms. Moreover, we study two federal parity laws and find the more comprehensive one is associated with 1.7 percent more weeks worked (47.62 weeks as the baseline). These results indicate that both of employers and employees may response to the increasing costs of providing more comprehensive health insurance by extending their working time.