Question

The requirements that (most) firms provide health insurance to workers can be thought of as increasing the costs of labor. What kinds of industries will be more likely to respond with large decreases in employment in response to these rules? How will the response be different in the short versus long run? Consider the Hicks-Marshall laws in your answer.

Answer 1

According to the Hicks Marshall laws, the own wage elasticity of labour demand is high provided that labour cost is a greater proportion of the total cost of production. Using the Hicks Marshall laws we can infer that typically those Industries that employ large number of workers such as the ones that use labour intensive techniques will more likely to respond with larger decrease in employment when Health Insurance to workers is made mandatory.

This will be a short run phenomena because in the long run labour supply will be ultimately fixed and an increase in the cost of hiring labour would not affect the quantity of labour hired by the firm.