Job lock

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Job lock occurs when a person is unable to freely leave a job because doing so will result in the loss of employee benefits (usually health or retirement related). Job lock is a common trend in United States because the greatest source of insurance for most Americans is Employer Provided Health Insurance (EPHI). While EPHI offers several advantages (over private 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 [1]. The nonportability of EPHI is what causes workers to get locked into their present jobs, hence the term job lock. The link between EPHI and labor market mobility is an important factor in evaluating several proposals to reform the US health care system [2]. The study by Madrian (1994) estimates that job-lock reduces the voluntary turnover rate of those with EPHI by 25 percent.

Job lock is discussed in the next two paragraphs in relation to health insurance. The two main causes of job lock is the open enrollment waiting period and pre-existing limitations. The first obstacle is that most new employers 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 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 [3]. 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 [4]. On a macro-scale, job lock is harmful to the overall economy.

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 resrouces leads to a lower level of overall productivity and national income [5] 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 [6]

An example of a job lock due to a defined benefit plan would be someone who has been working for a company for 20 years, thus accruing higher insurance benefits. 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

It is true that health insurance can be purchased as a private individual, however, not only is it more expensive to purchase in that form, once a person member is known to require expensive coverage insurers will either refuse to cover or set very high premiums and impose many limitation clauses (loop holes) in the contract.

In a looser sense, Job lock may describe a condition where an employee is being paid higher than scale or has accumulated significant benefits, so changing jobs is not a realistic option as it would result in significantly lower pay, less vacation time, etc.

[edit] References

  1. ^ Santerre, Rexford E., and Stephen P. Neun. Health Economics : Theories, Insights, and Industry Studies. Mason: Cengage South-Western, 2007. 324-25.
  2. ^ 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
  3. ^ Santerre, Rexford E., and Stephen P. Neun. Health Economics : Theories, Insights, and Industry Studies. Mason: Cengage South-Western, 2007. 324-25.
  4. ^ 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
  5. ^ Santerre, Rexford E., and Stephen P. Neun. Health Economics : Theories, Insights, and Industry Studies. Mason: Cengage South-Western, 2007. 324-25.
  6. ^ Santerre, Rexford E., and Stephen P. Neun. Health Economics : Theories, Insights, and Industry Studies. Mason: Cengage South-Western, 2007. 324-25.
  • 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

[edit] Further Reading

  • Adams, Scott J. (2004 July). "Employer-provided Health Insurance and Job Change," Contemporary Economic Policy, Oxford University Press, vol. 22(3), pages 357-369.
  • 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.
  • 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.
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