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Health and Wages - Panel data estimates considering selection and endogeneity

  • Robert Jäckle

This paper investigates the effects of health on wages by controlling for a number of problems: first, the unobservable genetic endowment may cause an omitted variable bias; second, using a self-reported health variable could induce measurement error; third, the issue of reverse causality arises; and fourth, panel attrition driven by the endogenous decision to participate in the labour market may result in inconsistent estimation. By using recently developed methods, I control for all of the above issues in one framework. The results show that good health raises wages for both women and men. I find the health variable to suffer from measurement error. In the male sample, applying OLS or 2SLS, instead of methods accounting for selection and individual heterogeneity, causes an upward bias in the health coefficient.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-Ifo_Working_Papers/wp-ifo-2005-2010/IfoWorkingPaper-43.pdf
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Paper provided by Ifo Institute for Economic Research at the University of Munich in its series Ifo Working Paper Series with number Ifo Working Paper No. 43.

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Date of creation: 2007
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Handle: RePEc:ces:ifowps:_43
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  1. Paul Contoyannis & Andrew M. Jones & Nigel Rice, 2004. "The dynamics of health in the British Household Panel Survey," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(4), pages 473-503.
  2. Ekaterini Kyriazidou, 1997. "Estimation of a Panel Data Sample Selection Model," Econometrica, Econometric Society, vol. 65(6), pages 1335-1364, November.
  3. Lee, Lung-Fei, 1982. "Health and Wage: A Simultaneous Equation Model with Multiple Discrete Indicators," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 23(1), pages 199-221, February.
  4. Kennedy, Peter, 1983. "Logarithmic Dependent Variables and Prediction Bias," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 45(4), pages 389-92, November.
  5. Verbeek, M.J.C.M. & Nijman, T.E., 1990. "Testing for selectivity bias in panel data models," Discussion Paper 1990-18, Tilburg University, Center for Economic Research.
  6. Lynn M Gambin, 2005. "The impact of health on wages in Europe – does gender matter?," Health, Econometrics and Data Group (HEDG) Working Papers 05/03, HEDG, c/o Department of Economics, University of York.
  7. Haveman, Robert & Wolfe, Barbara & Kreider, Brent & Stone, Mark, 1994. "Market Work, Wages, and Men's Health," Staff General Research Papers 10233, Iowa State University, Department of Economics.
  8. Laura Romeu Gordo, 2006. "Effects of short- and long-term unemployment on health satisfaction: evidence from German data," Applied Economics, Taylor & Francis Journals, vol. 38(20), pages 2335-2350.
  9. Timothy J. Halliday, 2008. "Heterogeneity, state dependence and health," Econometrics Journal, Royal Economic Society, vol. 11(3), pages 499-516, November.
  10. Anastasia Semykina & Jeffrey M. Woodridge, 2010. "Estimating Panel Data Models in the Presence of Endogeneity and Selection," Working Papers wp2010_10_01, Department of Economics, Florida State University.
  11. Jacob Mincer, 1958. "Investment in Human Capital and Personal Income Distribution," Journal of Political Economy, University of Chicago Press, vol. 66, pages 281.
  12. James J. Heckman, 1977. "Dummy Endogenous Variables in a Simultaneous Equation System," NBER Working Papers 0177, National Bureau of Economic Research, Inc.
  13. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
  14. Nijman, T.E. & Verbeek, M.J.C.M., 1992. "Testing for selectivity in panel data models," Other publications TiSEM 7ec34a6c-1d84-4052-971c-d, Tilburg University, School of Economics and Management.
  15. Steven Stern, 1989. "Measuring the Effect of Disability on Labor Force Participation," Journal of Human Resources, University of Wisconsin Press, vol. 24(3), pages 361-395.
  16. Lixin Cai, 2007. "Effects of Health on Wages of Australian Men," Melbourne Institute Working Paper Series wp2007n02, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  17. María Engracia ROCHINA-BARRACHINA, 1999. "A New Estimator for Panel Data Sample Selection Models," Annales d'Economie et de Statistique, ENSAE, issue 55-56, pages 153-181.
  18. Grossman, Michael, 2000. "The human capital model," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 7, pages 347-408 Elsevier.
  19. Wooldridge, Jeffrey M., 1995. "Selection corrections for panel data models under conditional mean independence assumptions," Journal of Econometrics, Elsevier, vol. 68(1), pages 115-132, July.
  20. Christian Dustmann & Mar�a Engracia Rochina-Barrachina, 2007. "Selection correction in panel data models: An application to the estimation of females' wage equations," Econometrics Journal, Royal Economic Society, vol. 10(2), pages 263-293, 07.
  21. Dustmann, Christian & Rochina-Barrachina, María Engracia, 2000. "Selection Correction in Panel Data Models: An Application to Labour Supply and Wages," IZA Discussion Papers 162, Institute for the Study of Labor (IZA).
  22. (*), Nigel Rice & Paul Contoyannis, 2001. "The impact of health on wages: Evidence from the British Household Panel Survey," Empirical Economics, Springer, vol. 26(4), pages 599-622.
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