Theory suggests that an employer's decisions about the amount of health insurance included in the compensation package may be influenced by the practices of other employers in the market. The authors test the role of local market conditions on decisions of small employers to offer insurance and their dollar contribution to premiums using data from two large national surveys of employers. These employers are more likely to offer insurance and to make greater contributions in communities with tighter labor markets, less concentrated labor purchasers, greater union penetration, and a greater share of workers in big business and a small share in regulated industries. However, their data do not support the notion that marginal tax rates affect employers' offer decision or contributions.
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