Dollars to Doughnuts

A tidy little study from Hoover debunking the "we all pay for obesity in the end" thesis and undermining the push to treat obesity as a public health problem. The Homer Simpson example is brought into play, and so the paper is (sorta)cleverly titled "Dollars to Doughnuts":

Obese workers earn less per hour than their thinner colleagues—a finding that is surprisingly robust and does not appear to be explained by differences in education, age, or training. This obesity wage gap is greater for female workers, but it is also true for men. Most often, economists attribute the gap to discrimination against the obese. Occasionally, economists argue that in some jobs (think of supermodels), thinner workers are more productive than obese ones.

My colleague Kate Bundorf and I have developed evidence that favors a different explanation. We think an important reason for the obesity wage gap is that the costs of health insurance are passed through to obese workers. This would be consistent with the theory of wage pass-through, because expected medical expenditures and hence the value of health insurance are greater for obese workers than for thin workers.

In our research, we examined the wage path over a decade for a nationally representative cohort of 12,686 people ages 24 to 31 years old in 1989. For our study, we focused on full-time workers but excluded pregnant women. We separated the workers into two groups: one with health insurance provided by their employer and one without.

We first looked at the wage paths for the group with health insurance (see figure above). As expected, given the discussion so far, obese workers earn less than thinner workers and the gap grows as the cohort ages and becomes more likely to use medical care. By 2000, obese workers were earning nearly $4.60 an hour less than thinner workers. This wage gap is at least as big as the expected difference in medical expenditures between obese and thin workers.

We then looked at wage paths for the group without health insurance (see directly above). For this group, the obesity wage gap never develops—thin and obese workers earned about the same, on average, exactly what one would expect to find under the theory of wage pass-through.

Our evidence has important implications for pooling in health insurance between thin and obese workers. Because wages are lower for obese workers only at jobs where health insurance is provided, the obesity wage gap would seem to undo whatever nominal pooling there is of health insurance premiums. If there is no real pooling, Carl and Lenny do not pay for Homer's body weight decisions and there is no public health crisis.

For the systematic treatment of the obesity-as-public-health issue, check out Jacob Sullum's May cover story on the "An Epidemic of Meddling."