Three Essays on Health and Labor Outcomes

Abstract

This dissertation is composed of three essays which examine the effects of health on labor market outcomes. Chapter 1 reviews the literature on health and the labor market. It also emphasizes the inherent endogeneity of health when included in models for labor market outcomes. It goes on to highlight the empirical methods most often used to accommodate that endogeneity. In chapter 2, I use 2000 to 2007 data from the Medical Expenditure Panel Survey (MEPS) to examine the role of health status in decisions to transition to self-employment. Much of the past literature has incorporated health status in models for self-employment in a perfunctory fashion. I account for unobserved heterogeneity and endogenous initial conditions using a discrete factor random effects model. Three hypotheses for the direct effect of health on the self-employment decision are put forth. The indirect effect that health may have in determining one’s valuation of health insurance coverage is controlled for in the model. Regression results indicate that individuals who experience any sort of functioning limitation, or who report relatively poorer health, are more likely to transition to self-employment over wage-employment, holding all else constant. Although the magnitude of the impact of health status varies between two sub-groups of the population studied. Chapter 3 examines the extent to which a spouse’s ill-health influences the labor supply decisions of the older men and women. Spouses’ ill-health is likely to affect their partner’s labor supply decision in off-setting ways. I control for the income effect due to the increase in the probability of an ill spouse to leave the labor force. Therefore, my estimates reflect the direct impact of a spouse’s ill-health on the partner’s labor supply decision through its effect on the partner’s reservation wage. However, it is likely that spouses’ earnings are endogenous in these models due to unobserved characteristics common to husbands and wives. I find that the estimated effect of a wife’s ill health on their partner’s labor supply decision is dependent on whether I instrument the spouse’s earnings. I also find that the estimated effect of husbands’ and wives’ ill health on their partners’labor supply decision is dependent on the health measure used in the models.