From Caring to Work: The Labor Market Effects of Noncontributory Health Insurance

Health reforms in low and middle-income countries usually include the provision of free or subsidized health insurance. In this paper, I examine whether this type of insurance encourages employment by freeing up resources previously used by households to cope with health shocks. To isolate the causal effect of providing free health insurance I use a differencein-differences design that exploits municipal (county) level variation in the rollout of Mexico’s Seguro Popular (SP). My main finding is that SP increases labor supply by retaining workers in the labor force. I propose that this occurs because SP reduces the time burden that dependents in poor health impose on caregivers. Consistent with this channel, I find that the labor supply response triggered by SP is driven by women, in particular those with caregiving responsibilities. Time use estimates provide additional evidence of the mechanism, as they illustrate that the increase in female labor supply is due to the reallocation of time from caregiving tasks at home to work in the labor market. The finding that SP increases labor supply is especially important, because it shows that the provision of subsidized health insurance need not entail an efficiency loss in the labor market. Specifically, I show that the increase in the share of workers in jobs without employer-based health insurance, that is, in informal jobs, is not driven by workers moving to less productive informal jobs, but by informal workers staying in the labor force. Accordingly, back-of-the-envelope calculations suggest that SP has led to a gain of one quarter of one percent of GDP.