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The Relationship between Health and Labour Force Participation: Evidence from a Panel Data Simultaneous Equation Model

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  • Lixin Cai

    ()
    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

Abstract

A concern when estimating the effect of health on labour supply is that health might be endogenous, and in particular that people might use poor health to justify non-participation. This would result in the effect of health being overestimated if health were treated as exogenous. The paper employs a simultaneous equation model to explore the relationship between health and labour force status, allowing for the endogeneity of health. In addition, the paper takes advantage of panel data to control for unobserved heterogeneity so that more efficient estimation results can be obtained than using cross-sectional data. The results confirm the finding in the literature that health has a positive and significant effect on labour force participation for both males and females. As for the reverse effect, it is found that labour force participation has a negative effect on male health but a positive effect on female health, implying that the justification hypothesis is rejected for males but not for females. The exogeneity hypothesis on the health variable is rejected for both samples based on a joint test.

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Bibliographic Info

Paper provided by Melbourne Institute of Applied Economic and Social Research, The University of Melbourne in its series Melbourne Institute Working Paper Series with number wp2007n01.

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Length: 37 pages
Date of creation: Feb 2007
Date of revision:
Handle: RePEc:iae:iaewps:wp2007n01

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Citations

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Cited by:
  1. Manuel Flores & Adriaan Kalwij, 2013. "What do wages add to the health-employment nexus? Evidence from older European workers," Documentos de trabajo - Analise Economica 0054, IDEGA - Instituto Universitario de Estudios e Desenvolvemento de Galicia.
  2. Oguzoglu, Umut, 2012. "Dynamics of Disability and Work in Canada," IZA Discussion Papers 6603, Institute for the Study of Labor (IZA).
  3. Schmitz, Hendrik, 2011. "Why are the unemployed in worse health? The causal effect of unemployment on health," Labour Economics, Elsevier, vol. 18(1), pages 71-78, January.
  4. James Enright & Grant M Scobie, 2010. "Healthy, Wealthy and Working: Retirement Decisions of Older New Zealanders," Treasury Working Paper Series 10/02, New Zealand Treasury.
  5. Furmanov, Kirill & Chernysheva, Irina, 2012. "Health and job search in Russia," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 26(2), pages 62-91.
  6. Heller, Lauren R., 2013. "Do slums matter? Location and early childhood preventive care choices among urban residents of Bangladesh," Social Science & Medicine, Elsevier, vol. 94(C), pages 43-55.
  7. Cai, Lixin, 2013. "The Dynamics of Low Pay Employment in Australia," MPRA Paper 50521, University Library of Munich, Germany.
  8. Fanti, Luciano & Gori, Luca, 2010. "Public health spending, old-age productivity and economic growth: chaotic cycles under perfect foresight," MPRA Paper 21335, University Library of Munich, Germany.
  9. Cain Polidano & Ha Vu, 2012. "Labour market impacts from disability onset," ANU Working Papers in Economics and Econometrics 2012-583, Australian National University, College of Business and Economics, School of Economics.
  10. Fe, Eduardo & Hollingsworth, Bruce, 2012. "Estimating the eect of retirement on mental health via panel discontinuity designs," MPRA Paper 38162, University Library of Munich, Germany.
  11. Patrick Laplagne & Maurice Glover & Anthony Shomos, 2007. "Effects of Health and Education on Labour Force Participation," Staff Working Papers 0704, Productivity Commission, Government of Australia.
  12. Lawrence Pellegrini & Rosa Rodriguez-Monguio & Jing Qian, 2014. "The US healthcare workforce and the labor market effect on healthcare spending and health outcomes," International Journal of Health Care Finance and Economics, Springer, vol. 14(2), pages 127-141, June.
  13. Gail Pacheco & Dom Page & Don Webber, 2012. "Mental and physical health: reconceptualising the relationship with employment propensity," Working Papers 20121206, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
  14. Fomba Kamga, Benjamin & Kengne Kamga, Arline & Audibert, Martine, 2013. "Health and Labour Income of Wage Earners and Self-Employed Workers in Cameroon," IZA Discussion Papers 7324, Institute for the Study of Labor (IZA).
  15. Conley, Dalton & Thompson, Jason, 2013. "The effects of health and wealth shocks on retirement decisions," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 389-404.

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