The Evolution of Health over the Life Cycle

Recent studies have identified health dynamics and health shocks as major sources of risk over the life cycle. Health has implications for many economic variables includ- ing asset accumulation, labor supply, and income and wealth inequality. Despite the importance of health in economic studies, there is no unified objective measure of health status. In this paper we propose such a measure: frailty, defined as the cumulative sum of all adverse health indicators observed for an individual. There is overwhelming evidence in the gerontology literature that this simple measure is a strong predictor of mortality and other health outcomes. We construct a frailty index for individuals in the PSID, HRS and MEPS separately and make the following three observations. One, our constructed frailty index is remarkably consistent across the three datasets in terms of persistence, and dynamics of its distribution. This is in contrast to the most commonly used measure of health, self-reported health status. Two, individuals’ health decays at a substantially faster pace over the lifecycle when measured by frailty as opposed to self-reported health status. Three, health status is more persistent when measured by frailty as opposed to self reported health status. We estimate a dynamic process for frailty over the life cycle and show that an important driver of increasing inequality in health with age is dispersion in growth rates of frailty across individuals. Our frailty measure and dynamic process can be used by economists to study the evolution of health status over the life cycle and its implications.