Reassessing human capital and health capital over the life course: Causal mediation analysis of higher education, health, and wages

The wage return to education has long been explained by human capital theory. However, little is known about the mediating role of improved health, another key component of human capital, in connecting educational attainment and economic gains over the life course. This paper uses data from the National Longitudinal Survey of Youth 1979 in the United States to reassess the economic value of education from a life course perspective, focusing on the interplay of college completion, health, and wages. Causal mediation analysis coupled with the recentered influence function first illuminates substantial returns to education, net of health mediation, particularly for upper quantiles of the wage distribution. College completion is linked to approximately a 0.3 increase in log hourly wages on average, and the effect estimates rise to over 0.5 at the 90th quantile. Nevertheless, as individuals age over 20 years from their mid-thirties, the mediating role of health increases, albeit with a relatively small magnitude, accounting for over 9 % of the total effect estimates in their mid-fifties. This indirect contribution of education through health capital is especially evident within the lower to middle wage quantiles. The observed structure is consistent across genders. These results suggest that college completion as such demonstrates a boosting effect on higher wages throughout one's career, whereas the pathway along enhanced health serves as a protective factor against falling into lower wage strata later in life.