". . . that the labor force status of an individual will be affected by his health is an unassailable proposition [because] a priori reasoning and casual observation tell us it must be so, not because there is a mass of supporting evidence." (Bowen and Finegan, 1969) "Despite the near universal finding that health is a significant determinant of work effort, the second major inference drawn from [this] review is that the magnitude of measured health effects varies substantially across studies." (Chirikos, 1993) This chapter provides an overview of some of the literature linking health and labor market behavior. The question is important because for groups as diverse as single mothers and older people, health is thought to be a major determinant of wages, hours, and labor force participation. Thus, an understanding of the effects of health on labor market activity is necessary for evaluations of the cost effectiveness of interventions designed to prevent or cure disease. Moreover, since the relationship between health and the labor market is mediated by social programs, an understanding of this relationship is necessary if we are to assess the effectiveness and solvency of these programs. In countries with aging populations, these questions will only become more pressing over time as more individuals reach the age where health has the greatest impact of labor market outcomes. The two quotations above, one from 1969 and one from 1993, illustrate that a good deal of empirical evidence linking health and labor market activity has sprung up over the last 25 years. Indeed, the literature we review suggests that health has a pervasive effect on most outcomes of interest to labor economists including wages, earnings, labor force participation, hours worked, retirement, job turnover, and benefits packages. But unfortunately there is no consensus about the magnitude of the effects or about their size relative to the effects of other variables. We will, however, be able to shed some light on factors that cause the estimates to disagree. Much of the best work linking health and labor market outcomes focuses on developing countries. This may be because the link between health and work is more obvious in societies in which many prime age adults are under-nourished and in poor health, and also because the theory of efficiency wages provides a natural starting point for investigations of this issue. However several excellent recent surveys of health and labor markets in developing countries already exist (dee Behrman and Deolalikar 1988 and Strauss and Thomas 1998). In order to break newer ground, this survey will have as its primary focus papers written since 1980 using U.S. data, although we will refer to the developing country literature where appropriate.

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Health, health insurance and the labor market

The quantitative effects and even the existence of a "human capital depreciation" phenomenon have been a subject of controversy in the recent literature. Prior work, however, was largely cross-sectional and the longitudinal dimension, if any, was retrospective. Using longitudinal panel data (on married women in NLS) we have now established that real wages at reentry are, indeed, lower than at the point of labor force withdrawal, and the decline in wages is greater, the longer the interruption. Another striking finding is a relatively rapid growth in wages after the return to work. This rapid growth appears to reflect the restoration (or "repair") of previously eroded human capital. The phenomenon of "depreciation" and "restoration" is also visible in data for immigrants to the United States. However, while immigrants eventually catch up with and often surpass natives, returnees from the nonmarket do not fully restore their earnings potential.

Interrupted Work Careers: Depreciation and Restoration of Human Capital.

We explore alternative measures of unobserved health status in order to identify effects of mental and physical capacity for work on older men's retirement. Traditional self-ratings of poor health are tested against more objectively measured instruments. Using the Health and Retirement Study (HRS), we find that health problems influence retirement plans more strongly than do economic variables. Specifically, men in poor overall health expected to retire one to two years earlier, an effect that persists after correcting for potential endogeneity of self-rated health problems. The effects of detailed health problems are also examined in depth.

Health Problems as Determinants of Retirement: Are Self-Rated Measures Endogenous?

Work preferences and preparation (college major) are included in an analysis of the gender differential in earnings among recent college graduates, using data from the National Longitudinal Studies of the High School Class of 1972. The results indicate a tendency for the young men and young women in the sample to prefer different occupational roles and to major in different fields of study in college. Together, these differences account for about one-third to two-thirds of the gender gap in hourly earnings three years after college graduation. This indicates that omission of work preferences and college major leads to an overestimation of the degree of current labor market discrimination against young female college graduates.

Job Preferences, College Major, and the Gender Gap in Earnings.

https://parc.pop.upenn.edu/sites/parc.pop.upenn.edu/files/parc/PARCwps98-02.pdf

Health problems as determinants of retirement: are self-rated measures endogenous?

This paper examines disabilities of older women and men and analyzes gender differences in the effect of disabilities on labor force participation using information on men and women aged 51-61 from the early release of the first wave of the Health and Retirement Survey. Our results demonstrate the importance of using multiple measures of disabilities (we use work limitations, functional limitations, and specific health impairments) to document gender differences and understand the connections between disabilities and work. We find that men and women have different rates of disability, and that both men and women working in occupations with greater physical requirements exhibit higher rates of disabilities than other workers. We also find that measures of functional limitations and health impairments both have significant negative effects on labor force participation. The effects of disabilities on labor force participation are larger for men and single women than for married women.

Gender, Disabilities, and Employment in the Health and Retirement Study

This article estimates the impact that young women's ex ante preferences for future labor force attachment have on their human capital accumulation and pay Empirical evidence from the National Longitudinal Surveys of Young Women aged 14 to 24 in 1968 supports the human capital hypothesis that receipt of on-the-job training is positively related to expectations of future labor force participation Comparing the actual labor force attachment of mature women with preferences for future participation of young women indicates that young women (as a group) may underestimate their future labor force attachment This implies that some young women may underinvest in on-the-job training

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Work Expectations, Human Capital Accumulation, and the Wages of Young Women.

We propose a new approach to analyzing gender differences in wages. This approach identifies several alternative explanatory mechanisms to account for the sorting of women and men into different types of jobs that offer different levels of reward. ...

An Exchange: The Theory of Human Capital and the Earnings of Women: A Reexamination of the Evidence

During a period of high unemployment, the plight of older workers who lose their jobs is of prime policy concern. Older workers are unemployed longer than other workers; for example, in October 1982, unemployed men age 45 and over were, on average, unemployed for 15 weeks compared to 10 weeks for all men 16 and over [27;20].' This paper focuses on a different aspect of the labor-market consequences of job displacement: loss of earnings after finding a new job. We examine two policy-relevant questions: Is there a relationship between age and the wage loss associated with displacement and reemployment? How do overall economic conditions affect the loss?

Age Discrimination in Wages and Displaced Older Men

Several recent articles in this Journal [1, 8, 9, 10] have raised issues concerning the appropriate specification of human capital models of earnings, the interpretation of regression coefficients in these models, and potential biases in measuring sex discrimination. This paper extends the discussion by examining both the empirical specification of human capital models of earnings in the presence of discontinuous work experience over the life cycle and simultaneous-equations models of wage determination and labor supply. While the previous discussion has dealt mainly with models where data on actual work experience were not available, this paper considers specification and interpretation of human capital models when such data are available, as in the National Longitudinal Surveys of Work Experience of Women aged 30-44 (NLS).1 An earlier study [5] has used the NLS data to estimate segmented earnings functions for married women, dividing lifetime work experience into several intervals and interpreting differences in the coefficients for these intervals as reflecting life-cycle differences in human capital accumulation through investment in on-the-job training. It is our contention that the interpretation of the econometric model estimated in that study

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Steven H. Sandell

Papers

Gender, Disabilities, and Employment in the Health and Retirement Study

Work Expectations, Human Capital Accumulation, and the Wages of Young Women.

An Exchange: The Theory of Human Capital and the Earnings of Women: A Reexamination of the Evidence

Age Discrimination in Wages and Displaced Older Men

The Theory of Human Capital and the Earnings of Women: A Re-examination of the Evidence. Revised.