Abstract
This study examines the link between health shocks and labor market outcomes in the United Kingdom. For sample periods of up to seven years, I use longitudinal data from the British Household Panel Survey (BHPS) to test how sudden declines in self-reported health as well as the onsets of health conditions affect a number of labor market outcomes, such as personal income, employment status, and hours worked. The study shows that sudden health declines lead to significant and persistent reductions in earnings, which are only partly driven by reductions in labor force participation. The results suggest that higher out-of-pocket expenditures for health care and reduced work productivity are potential mechanisms through which health shocks affect earnings. The observed income losses are substantially larger for males and for individuals with higher levels of education. Additionally, the study shows that health shocks significantly impact economic stress and uncertainty as well as general well-being.
Highlights
Despite being previously examined by several researchers, there is still uncertainty about the relationship between labor market and health outcomes
The findings in this study provide evidence that health shocks significantly affect the labor market outcomes of individuals in the UK for several years after the decline in health
García-Gómez et al [24] suggest that negative effects of health shocks on labor markets can exist either due to incentives created by disability benefits or due to labor market institutions constraining the responsiveness of wages to reduced productivity
Summary
Despite being previously examined by several researchers, there is still uncertainty about the relationship between labor market and health outcomes. While the majority of existing studies has focused on examining health effects following changes in income and employment, there has been growing interest in learning more about the effects of health on labor market outcomes in recent years. Given the close link between employment status and both health and health insurance coverage, an improved understanding of how labor market outcomes are affected following health shocks is relevant for policymakers. There is little evidence about the potential mechanisms through which health shocks could affect immediate and long-term labor market outcomes. Using longitudinal data from the British Household Panel Survey (BHPS) for up to 9 years, this study examines the effects of health shocks on several labor market outcomes and explores potential channels through which labor market outcomes are affected following health shocks
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