Age Related Health Costs and Job Prospects of Older Workers

Employer bias against older workers is widely suspected. In the case of older job applicants, discrimination has been confirmed in randomized field trials called resume audits. The findings from these studies demonstrate that many employers prefer to interview younger rather than older job applicants who have the same qualifications. Employers’ preference for younger over older job applicants may be due to their expectation that when two applicants present identical credentials, the older one is likely to be either less productive or more costly to the employer, even if the two workers are paid the same wage. This paper estimates the cost differences to employers of offering employer-sponsored health insurance (ESI) to older versus younger workers. Using information from a large sample of employees interviewed in the Medical Expenditure Panel Survey (MEPS), it finds that, relative to the ESI compensation costs of 45-49 year-olds, those of employees between 55 and 59 would be $1,440 per year higher, those of employees 60-64 would be $2,440 higher, and those of employees 65 and older would be $1,300 higher. These estimates show the added compensation cost of an older compared with a younger employee is both significant and meaningfully large. For workers earning the median annual wage, the extra employer cost of offering ESI is about 3 percent of the wage for 55-59 and 65+ year-old workers; the extra cost of employing a 60-64-year-old worker is 5 percent of the median wage. For workers earning wages in the bottom third of the earnings distribution, the proportional cost of the ESI offer to an older worker is even larger