The term job lock is used to describe the inability of an employee

Employment

Employment is a contract between two parties, one being the employer and the other being the employee. An employee may be defined as:- Employee :...

  to freely leave a job because doing so will result in the loss of employee benefit

Employee benefit

Employee benefits and benefits in kind are various non-wage compensations provided to employees in addition to their normal wages or salaries...

s (usually health

Health insurance

Health insurance is insurance against the risk of incurring medical expenses among individuals. By estimating the overall risk of health care expenses among a targeted group, an insurer can develop a routine finance structure, such as a monthly premium or payroll tax, to ensure that money is...

 or retirement

Pension

In general, a pension is an arrangement to provide people with an income when they are no longer earning a regular income from employment. Pensions should not be confused with severance pay; the former is paid in regular installments, while the latter is paid in one lump sum.The terms retirement...

 related). In a broader sense, job lock may describe the situation where an employee is being paid higher than scale or has accumulated significant benefits, so that changing jobs is not a realistic option as it would result in significantly lower pay, less vacation time, etc.

Benefits-related job lock is a concern in United States

United States

The United States of America is a federal constitutional republic comprising fifty states and a federal district...

 because the greatest source of insurance for most Americans is Employer Provided Health Insurance (EPHI). While EPHI offers several advantages over individually purchased health insurance, such as lower premiums and informed purchasing, it has a major disadvantage in that the employees cannot take their EPHI to their next place of employment . The nonportability of EPHI is what causes workers to get locked into their present jobs, hence the term job lock. Bridget Madrian argued in 1994 that the link between EPHI and labor market

Labour economics

Labor economics seeks to understand the functioning and dynamics of the market for labor. Labor markets function through the interaction of workers and employers...

 mobility was an important factor in evaluating several proposals to reform the US health care system

History of health care reform in the United States

The issue of health insurance reform in the United States has been the subject of political debate since the early part of the 20th century. Recent reforms remains an active political issue...

. The study by Madrian (1994) estimated that job-lock reduced the voluntary turnover rate of those with EPHI by 25 percent.

Legislative efforts to address health-insurance related job lock in the US include the Consolidated Omnibus Budget Reconciliation Act of 1985

Consolidated Omnibus Budget Reconciliation Act of 1985

The Consolidated Omnibus Budget Reconciliation Act of 1985 is a law passed by the U.S. Congress on a reconciliation basis and signed by President Reagan that, among other things, mandates an insurance program giving some employees the ability to continue health insurance coverage after leaving...

 and the Health Insurance Portability and Accountability Act

Health Insurance Portability and Accountability Act

The Health Insurance Portability and Accountability Act of 1996 was enacted by the U.S. Congress and signed by President Bill Clinton in 1996. It was originally sponsored by Sen. Edward Kennedy and Sen. Nancy Kassebaum . Title I of HIPAA protects health insurance coverage for workers and their...

 of 1996.

Causes

The two main ways in which health insurance can create job lock are the open enrollment waiting period and pre-existing limitations. The first obstacle is that most new employees at a new job have to wait a certain amount of months in order to be eligible for certain fringe benefits, including health insurance. The second obstacle is that many health insurance companies try to discourage the high risk consumers or sick consumers from enrolling in their health insurance plan since they are the most costly for the health insurance companies. One way to do this is through the pre-existing limitations in which those who have certain medical conditions (ex. heart attacks, diabetes, over weight, cancer, AIDS/HIV) will be denied for a health insurance plan. These two barriers prevent employees from wanting to switch jobs for the fear of losing their health insurance benefits. In summary, the long waiting periods, risk of having pre-existing conditions, and the potential for less extensive health coverage at the new job all increase the financial risk associated with moving jobs, making change in jobs a very costly endeavor, so workers are more likely to stay locked into their current jobs instead of risking the job transfer. If employees knew that all their illnesses would receive identical coverage regardless of whether they worked, where they worked, or how long they had been on the job, health insurance would not be a deterrent to worker mobility. On a macro-scale, job lock is harmful to the overall economy.

While health insurance may be purchased on an individual basis, in states that permit medical underwriting

Medical Underwriting

Medical underwriting is an insurance term referring to the use of medical or health status information in the evaluation of an applicant for coverage . As part of the underwriting process, health information may be used in making two related decisions: whether to offer or deny coverage; and what...

 individuals with health conditions may be declined coverage or, if coverage is offered, face high premiums or benefit exclusions.

An example of a job lock due to a defined benefit pension plan

Defined benefit pension plan

In economics, a defined benefit pension plan is a major type of pension plan in which an employer promises a specified monthly benefit on retirement that is predetermined by a formula based on the employee's earnings history, tenure of service and age, rather than depending on investment returns...

would be someone who has been working for a company for 20 years, thus accruing a higher retirement income benefit. If they leave to work for another company their benefits are reset and they eventually realize a lower level of retirement benefits. For more on the specifics of defined benefits plans, see http://retireplan.about.com/cs/retirement/a/aa_defined_a5.htm

Impact

Job lock has two negative implications for society. One implication is that those who want to switch jobs prefer another job because there is a higher utility associated with it (e.g. better suits their skills and talents). However, if they are “stuck” at a job, the negative externality is that they are being inefficient workers and not as productive for the company and society. Workers are discouraged from switching to jobs where they are more efficient producers, and this immobility of labor resrouces leads to a lower level of overall productivity and national income. The second implication is that the high risk consumers are more likely to face job lock for fear of losing coverage for their routine medical expenditures (they know their expected value of health bills). Employers offer health insurance benefits to ensure that their workers are healthy and therefore, productive workers. However, since job lock is common in the high risk employees, employers are ultimately keeping the high risk employees as a part of their company.

When attempting to estimate how frequently job lock occurs, one must control for outside factors that may influence a worker's decision other than the risk of losing health care. Other factors can include initial wages and expected wage offers at new employment, other fringe benefits, experience, and job security.