The term job lock is used to describe the inability of an employee to freely leave a job because doing so will result in the loss of employee benefits (usually health or retirement related). In a broader sense, job lock may describe the situation where an employee is being paid higher than scale or has accumulated significant benefits, so that changing jobs is not a realistic option as it would result in significantly lower pay, less vacation time, etc.
Benefits-related job lock is a concern in United States because the greatest source of insurance for most Americans is Employer Provided Health Insurance (EPHI). While EPHI offers several advantages over individually purchased health insurance, such as lower premiums and informed purchasing, it has a major disadvantage in that the employees cannot take their EPHI to their next place of employment. The nonportability of EPHI is what causes workers to get locked into their present jobs, hence the term job lock. Bridget Madrian argued in 1994 that the link between EPHI and labor market mobility was an important factor in evaluating several proposals to reform the US health care system. The study by Madrian (1994) estimated that job-lock reduced the voluntary turnover rate of those with EPHI by 25 percent.
Legislative efforts that have attempted to address health-insurance related job lock in the US are the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) and the Health Insurance Portability and Accountability Act of 1996 (HIPAA). However, employers can require their former workers to pay 102 percent of the full premium for COBRA among many other hurdles and HIPAA doesn't ensure that workers who change jobs will have access to health insurance coverage on the new job or that the coverage offered will be affordable. Thus, neither COBRA nor HIPAA ensures affordability of health insurance -- the main cause of job lock.
The two main ways in which health insurance can create job lock are the open enrollment waiting period and pre-existing limitations. The first obstacle is that most new employees at a new job have to wait a certain amount of months in order to be eligible for certain fringe benefits, including health insurance. The second obstacle is that many health insurance companies try to discourage the high risk consumers or sick consumers from enrolling in their health insurance plan since they are the most costly for the health insurance companies. One way to do this is through the pre-existing limitations in which those who have certain medical conditions (ex. heart attacks, diabetes, over weight, cancer, AIDS/HIV) will be denied for a health insurance plan. These two barriers prevent employees from wanting to switch jobs for the fear of losing their health insurance benefits. In summary, the long waiting periods, risk of having pre-existing conditions, and the potential for less extensive health coverage at the new job all increase the financial risk associated with moving jobs, making change in jobs a very costly endeavor, so workers are more likely to stay locked into their current jobs instead of risking the job transfer. If employees knew that all their illnesses would receive identical coverage regardless of whether they worked, where they worked, or how long they had been on the job, health insurance would not be a deterrent to worker mobility. On a macro-scale, job lock is harmful to the overall economy.
While health insurance may be purchased on an individual basis, in states that permit medical underwriting individuals with health conditions may be declined coverage or, if coverage is offered, face high premiums or benefit exclusions.
An example of a job lock due to a defined benefit pension plan would be someone who has been working for a company for 20 years, thus accruing a higher retirement income benefit. If they leave to work for another company their benefits are reset and they eventually realize a lower level of retirement benefits. For more on the specifics of defined benefits plans, see http://retireplan.about.com/cs/retirement/a/aa_defined_a5.htm
Job lock has two negative implications for society. One implication is that those who want to switch jobs prefer another job because there is a higher utility associated with it (e.g. better suits their skills and talents). However, if they are “stuck” at a job, the negative externality is that they are being inefficient workers and not as productive for the company and society. Workers are discouraged from switching to jobs where they are more efficient producers, and this immobility of labor resources leads to a lower level of overall productivity and national income. The second implication is that the high risk consumers are more likely to face job lock for fear of losing coverage for their routine medical expenditures (they know their expected value of health bills). Employers offer health insurance benefits to ensure that their workers are healthy and therefore, productive workers. However, since job lock is common in the high risk employees, employers are ultimately keeping the high risk employees as a part of their company.
When attempting to estimate how frequently job lock occurs, one must control for outside factors that may influence a worker's decision other than the risk of losing health care. Other factors can include initial wages and expected wage offers at new employment, other fringe benefits, experience, and job security.
- Santerre, Rexford E., and Stephen P. Neun. Health Economics : Theories, Insights, and Industry Studies. Mason: Cengage South-Western, 2007. 324-25.
- Madrian, Bridgett. "Employment Based Health Insurance and Job Mobility: Is there Evidence of Job-Lock?" Quarterly Journal of Economics, 109(1), February, 1994: 27-54
- Adams, Scott J. (2004 July). "Employer-provided Health Insurance and Job Change," Contemporary Economic Policy, Oxford University Press, vol. 22(3), pages 357-369.
- Bansak, Cynthia and Steven Raphael (2007). "The State Children's Health Insurance Program and Job Mobility: Identifying Job Lock among Working Parents in Near-Poor Households," Industrial & Labor Relations Review, Vol. 61, No. 4, article 7.
- Berger, Mark C., Black, Dan A. and Frank A. Scott (2004 April). "Is There Job Lock? Evidence from the Pre-HIPAA Era," Southern Economic Journal, Southern Economic Association, vol. 70(4), pages 953-976.
- Gruber, Jonathan and Brigitte C. Madrian (2002). "Health Insurance, Labor Supply, and Job Mobility: A Critical Review of the Literature," NBER Working Papers 8817, National Bureau of Economic Research, Inc.
- Gruber, Jonathan & Brigitte C. Madrian (1993). "Limited Insurance Portability and Job Mobility: The Effects of Public Policy on Job-Lock," NBER Working Papers 4479, National Bureau of Economic Research, Inc.
- Holtz-Eakin, Douglas (1993). "Job-Lock: An Impediment to Labor Mobility? Is Health Insurance Crippling the Labor Market?," Economics Public Policy Brief Archive 10, Levy Economics Institute.
- Johnson, Richard W., Davidoff, Amy J. and Kevin Perese (2003). "Health Insurance Costs and Early Retirement Decisions," Industrial & Labor Relations Review, Vol. 56, No. 4, article 9.
- Kapur, Kanika (1998 January). "The Impact of health on job mobility: A measure of job lock," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 51(2), pages 282-298.
- Kapur, Kanika and Jeannette Rogowski (2006). "The Role of Health Insurance in Joint Retirement among Married Couples," Industrial & Labor Relations Review, Vol. 60, No. 3, article 2.
- Madrian, Brigitte C. (1994 February). "Employment-Based Health Insurance and Job Mobility: Is There Evidence of Job-Lock?," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 27–54.
- Sanz-de-Galdeano, Anna (2006). "Job-Lock and Public Policy: Clinton's Second Mandate," Industrial & Labor Relations Review, Vol. 59, No. 3, article 5.
- Stinson, Martha Harrison (2002 July). "Estimating the Relationship between Employer-Provided Health Insurance, Worker Mobility, and Wages," Paper presented at 10th International Conference on Panel Data, Berlin.
- Stroupe, Kevin T., Kinney, Eleanor D. and Thomas J. Kniesner (2000). "Chronic Illness and Health Insurance-Related Job Lock," Center for Policy Research Working Papers 19, Center for Policy Research, Maxwell School, Syracuse University.