Labour market institutions and long term adjustments to health shocks: Evidence from Italian administrative records

Abstract

We investigate how labour market institutions shape the labour response to acute cardiovascular shocks in a highly regulated labour market over the long run. Using Italian administrative data that covers the history of employment, social security and hospitalization of workers, we exploit several identification strategies to remove bias from observable and unobservable confounders. Significant reductions in employment and labour income emerge in the short run and persist over time, with no evidence of re-entry in the longer run. No adjustment is detected in working hours or wages for those who maintain employment. While the Disability Insurance (DI) system contributes to insure workers against the consequences of health shocks, we offer new evidence on the value of employment protective institutions in strengthening unhealthy workers’ labour inclusion, in particular for blue-collar workers.