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The relationship between health and labour force participation: Evidence from a panel data simultaneous equation model

  • Cai, Lixin

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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Article provided by Elsevier in its journal Labour Economics.

Volume (Year): 17 (2010)
Issue (Month): 1 (January)
Pages: 77-90

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Handle: RePEc:eee:labeco:v:17:y:2010:i:1:p:77-90
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  1. John Bound & Michael Schoenbaum & Timothy Waidmann, 1996. "Race Differences in Labor Force Attachment and Disability Status," NBER Working Papers 5536, National Bureau of Economic Research, Inc.
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  13. Bound, John & Schoenbaum, Michael & Stinebrickner, Todd R. & Waidmann, Timothy, 1999. "The dynamic effects of health on the labor force transitions of older workers," Labour Economics, Elsevier, vol. 6(2), pages 179-202, June.
  14. Kathryn H. Anderson & Richard V. Burkhauser, 1985. "The Retirement-Health Nexus: A New Measure of an Old Puzzle," Journal of Human Resources, University of Wisconsin Press, vol. 20(3), pages 315-330.
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  29. Lixin Cai & Guyonne Kalb, 2007. "Health status and labour force status of older working-age Australian men," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 10(4), pages 227-252, December.
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