Health Insurance and the College Premium ∗ Anson

The gap between the rich and the poor is rising. During the past 30 years, this difference has been especially pronounced between college graduates and non-college graduates. The ratio of skilled (college educated) wages to unskilled (non-college graduate) wages is called the skill premium, and it has also increased over the past 30 years. The increase in the skill premium has continued despite a dramatic increase in the supply of college graduates. In 1980, the skill premium was 1.37 and in 2009 it was 1.93. Common explanations for the rising skill premium include the increasing downward pressure on unskilled wages due to international trade (Thoenig and Verdier, 2003), immigration (Card, 2009), and deunionization (Asher and DeFina, 1997). An especially compelling explanation for the rise in the skill premium is the capital-skill complementarity hypothesis. The amount of capital equipment being used in the economy has been rising along with the skill premium. If capital and skill are complements, rising amounts of capital could lead to higher wages for skilled workers (see Griliches, 1969 and Krusell et al., 2004). In addition, health insurance costs may also be contributing to increasing income disparity. Health insurance costs are rising and are an increasingly large part of employee compensation. For example, in 1980, employers paid an additional 2.5% of employees’ ∗We benefited from the comments of Janet Currie, Kim P. Huynh, Jennifer Schultz, Kai Zhao, seminar participants at the 2012 Canadian Economic Association Annual Conference, and the 2012 American Society of Health Economnist Biennial Conference. All errors are ours. †Department of Economics, Kansas State University, 327 Waters Hall, Manhattan, KS 66506-4000, USA. Phone: 785-532-4582. Fax: 785-532-6919, Email: [email protected]. ‡Corresponding author. Department of Pharmacy Practice and Science, University of Iowa, Iowa City, IA 52242, 319-335-3797 (phone), 319-335-1956 (fax), [email protected].