Money, schooling, and health: Mechanisms and causal evidence

Abstract

An association between higher educational attainment and better health status has been repeatedly reported in the literature. Similarly, thousands of studies have found a relationship between higher income and better health. However, whether these repeated observations amount to causality remains a challenge, not least because of the practical limitations of randomizing people to receive different amounts of money or schooling. In this essay, we review the potential causal mechanisms linking schooling and income to health, and discuss the twin challenges to causal inference in observational studies, in other words, reverse causation and omitted variable bias. We provide a survey of the empirical attempts to identify the causal effects of schooling and income on health, including natural experiments. There is evidence to suggest that schooling is causally related to improvements in health outcomes. Evidence also suggests that raising the incomes of the poor leads to improvement in their health outcomes. Much remains unknown beyond these crude findings, however; for example, what type of education matters for health, or whether there is a difference between the health impacts of temporary income shocks versus changes in long-term income.