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Pays for employer-provided health insurance

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Consider a simplified model of the labor market where all workers are the same and all jobs are full-time. Suppose that we start at an equilibrium in which firms are not providing health insurance to their employees, but that workers would be willing to pay an amount for health insurance exactly equal to what it costs employers to provide it. Now suppose that employers are required to provide insurance to their employees.

  1. What happens to cash wages and the level of employment at the new equilibrium, as compared to the old equilibrium?
  2. What does this suggest about who really pays for employer-provided health insurance?

Reference no: EM132303027

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