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Discrete Heterogeneity in the Impact of Health Shocks on Labour Market Outcomes

  • Stefanie Schurer


Empirical evidence from the psychology literature suggests that reactions towards health shocks depend strongly on the personality trait of locus of control, which is usually unobservable to the analyst. In this paper, the role of this discrete heterogeneity in shaping the effects of health shocks on labour supply is theoretically modelled by adopting the Grossman (1972) model. Using German longitudinal data, the predictions of the theoretical model are tested with a latent class binary choice model and an alternative identification strategy.A robust result across both specifications for various definitions of locus of control, health shocks and labour market outcomes is that internals have a smaller probability of leaving the labour market after experiencing a health shock than externals.

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Paper provided by Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen in its series Ruhr Economic Papers with number 0071.

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Length: 45 pages
Date of creation: Sep 2008
Date of revision:
Handle: RePEc:rwi:repape:0071
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  1. Timothy J. Halliday, 2007. "Heterogeneity, State Dependence and Health," Working Papers 200716, University of Hawaii at Manoa, Department of Economics.
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  15. van Ours, J.C., 2005. "Cannabis, Cocaine and Jobs," Discussion Paper 2005-15, Tilburg University, Center for Economic Research.
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  20. repec:zbw:rwirep:0008 is not listed on IDEAS
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