The Impact of Health Insurance Expansions on Labor Outcomes: Evidence from Indonesia

Abstract Several developing countries have pushed towards expanding health insurance coverage to universal levels in recent years. This led to a debate on whether such expansions can have unintended impacts on the labor market decisions, such as a movement of workers towards the informal sector of the labor market, or a decrease in labor supply. We provide evidence on this issue by examining the labor market impacts of a health insurance program for the poor implemented in Indonesia in 2005. Using a rich longitudinal survey, we employ propensity score matching with difference in differences, with matching on a set of variables that include the observable characteristics used by the government to allocate the benefit. We find a negative impact on labor force participation at both the extensive and intensive margins of labor supply, mainly driven by women. The estimation results are less supportive of an impact of this health expansion on informal labor status.