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Earnings and the Elusive Dividends of Health

  • William D. Savedoff
  • T. Paul Schultz

This paper looks at the relationship between health and income. After discussing the general context of health improvements in Latin America during the last few decades, the study elaborates on the interrelationships between the physical and social determinants of health, the complexities that arise in attributing earnings differentials to variations in health status, and the difficulties of accurately measuring health status. The paper presents a methodology for estimating the impact of health on earnings that addresses problems of measurement error and endogeneity, then summarizes the main findings of related studies undertaken as part of a larger project. These studies show that health status does have a significant, although modest, impact on earnings in four Latin American countries. Furthermore, environmental conditions (such as housing and sanitation) appear to have significant impacts on health status, compared to health services and public health facilities, which show little influence. The universally strong relationship between education and earnings is only modestly reduced by the inclusion of health status despite a general expectation that estimated returns to education were, in part, capturing the frequently unmeasured effects of health. By analyzing these relationships together-health determinants and the impact of health on earnings-we can assess the magnitude and importance of the `human capital`component of health status, validate and compare a range of health indicators, and identify promising areas for public policy to invest in health improvements.

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Paper provided by Inter-American Development Bank, Research Department in its series Research Department Publications with number 3108.

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Date of creation: Jul 2000
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Handle: RePEc:idb:wpaper:3108
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  1. Thomas, D. & Strauss, J., 1995. "Health, Wealth and Wages of Men and Women in Urban Brazil," Papers 95-11, RAND - Labor and Population Program.
  2. Felicia Marie Knaul, 1999. "Linking Health, Nutrition and Wages: The Evolution of Age at Menarche and Labor Earnings among Adult Mexican Women," Research Department Publications 3053, Inter-American Development Bank, Research Department.
  3. Schultz, T. Paul & Tansel, Aysit, 1997. "Wage and labor supply effects of illness in Cote d'Ivoire and Ghana: instrumental variable estimates for days disabled," Journal of Development Economics, Elsevier, vol. 53(2), pages 251-286, August.
  4. Rosenzweig, Mark R & Wolpin, Kenneth I, 1986. "Evaluating the Effects of Optimally Distributed Public Programs: ChildHealth and Family Planning Interventions," American Economic Review, American Economic Association, vol. 76(3), pages 470-82, June.
  5. Strauss, John & Thomas, Duncan, 1995. "Human resources: Empirical modeling of household and family decisions," Handbook of Development Economics, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 3, chapter 34, pages 1883-2023 Elsevier.
  6. Costa, Dora L., 1996. "Health and Labor Force Participation of Older Men, 1900–1991," The Journal of Economic History, Cambridge University Press, vol. 56(01), pages 62-89, March.
  7. Sen, Amartya, 1998. "Mortality as an Indicator of Economic Success and Failure," Economic Journal, Royal Economic Society, vol. 108(446), pages 1-25, January.
  8. Glewwe, P. & Jacoby, H., 1992. "Estimating the Determinants of Cognitive Achivement in Low-Income Countries," Papers 91, World Bank - Living Standards Measurement.
  9. Edmundo Murrugarra & Martin Valdivia, 1999. "The Returns to Health for Peruvian Urban Adults: Differentials Across Genders, the Life Cycle and the Wage Distribution," Research Department Publications 3050, Inter-American Development Bank, Research Department.
  10. Susan W. Parker, 1999. "Elderly Health and Salaries in the Mexican Labor Market," Research Department Publications 3051, Inter-American Development Bank, Research Department.
  11. Moock, Peter R. & Leslie, Joanne, 1986. "Childhood malnutrition and schooling in the Terai region of Nepal," Journal of Development Economics, Elsevier, vol. 20(1), pages 33-52.
  12. Willard G. Manning, Jr. & Joseph P. Newhouse & John E. Ware, Jr., 1982. "The Status of Health in Demand Estimation; or, Beyond Excellent, Good, Fair, Poor," NBER Chapters, in: Economic Aspects of Health, pages 141-184 National Bureau of Economic Research, Inc.
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