In an economy,employers cover the cost of health insurance by the difference between what the worker produces and what the worker gets in wages.If the cost of health insurance goes up by $5000 for all workers,what will happen to earnings inequality (as measured by the 80:20 ratio)?

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Quizplus · Accepted Answer

When the cost of health insurance increases by $5000 for all workers, employers will likely adjust by reducing wages or wage growth to cover the increased expense. Since higher earners typically have a larger buffer between their productivity and wages, they can absorb the cost more easily than lower earners, who have less wiggle room. This discrepancy can lead to an increase in earnings inequality, as the relative wage reduction will be more significant for lower earners, exacerbating the 80:20 ratio.

In an Economy,employers Cover the Cost of Health Insurance by the Difference