Universal Health Care Would Boost Entrepreneurship

I’m the sort of person who’s prone to saying that we could have a more entrepreneurial economy in the United States if we had a universal health care system. The thinking is that our current system unduly punishes risk-taking. There are a lot of different aspects of this, but basically the American health care system both produces labor market rigidities (“job lock”) and makes jobs at small firms relatively unattractive. But do I have any actual evidence of this? Well, not really. I think theory alone can establish that the effect should be there, but how big is it? Fortunately, Jonathan Gruber has some new data:

Over the past fifteen years, dozens of studies have documented the detrimental impact that job lock has on the economy. These studies typically compare the mobility of workers who are at firms with insurance but do not have an alternative source of coverage (such as spousal insurance or COBRA continuation coverage) to those who do have an alternative source of coverage should they leave the firm. The studies find that mobility is much higher when workers do not have to fear losing coverage; job-to-job mobility is estimated to increase by as much as 25 percent when alternative group coverage is available. […]

There are fewer direct studies of the impact of job lock on entrepreneurship. But the most convincing research, by Alison Wellington, mirrors the findings of other job mobility studies: Americans who have an alternative source of health insurance, such as a spouse’s coverage, are much more likely to be self-employed than those who don’t. Wellington estimates that universal health care would therefore likely increase the share of workers who are self-employed (currently about 10 percent of the workforce) by another 2 percent or more. A system that provides universal access to health insurance coverage, then, is far more likely to promote entrepreneurship than one in which would-be innovators remain tied to corporate cubicles for fear of losing their family’s access to affordable health care. Indeed, even the Galtians among us should be celebrating the expanded potential for individual enterprise once the chains tying them to a job that provides insurance have been broken.

I would add that when you really get down to the issue of starting a successful new business, there should be interaction effects here. Job lock discourages people from taking new jobs. And it also discourages people from starting new businesses. But the fact that people are being discouraged from taking new jobs also makes it harder to start or expand new businesses.


And it’s worth saying that there are other benefits to flexibility besides these kind of narrowly business-oriented ones. The same things that make it harder for someone to start a new business also make it harder for someone to say they’re going to work a few years, pay off loans and save up some money, and then go travel somewhere or study something that’s of interest to them. Similarly, Canada’s health care system is a great blessing to someone who might want to try to subsist on a part-time job while dedicating the bulk of his energy to his band (to be sure, a form of entrepreneurship) and this perhaps accounts for Canada’s disproportionate production of indie rock.