Malathi R. Velamuri, a lecturer in the School of Economics and Finance at Victoria University of Wellington, examines whether the availability of health coverage through a spouse's health plan influences a married woman's decision to become self-employed.

The Tax Reform Act of 1986 (TRA86), which introduced a tax subsidy for the self-employed to purchase their own health insurance, provides an opportunity to isolate the effect of the price of health insurance on employment-sector choices.

The findings in this paper suggest that in the pre-TRA86 period, the high cost of health insurance created a significant wedge in the price of health insurance between the wage-salary sector and self-employment. Women who had a preference for working in the self-employment sector and who enjoyed spousal health benefits were able to exercise their preference and select into self-employment. On the other hand, for some women with a preference for the self-employment sector but restricted in purchasing their own health insurance, it was too costly to opt for this sector. For these women, the TRA86, by narrowing this price wedge, lowered the price of selecting into their desired sector of employment.