The Effects of Health on the Labor Supply of Older Workers

Published: 2016
Project ID: UM16-16


This project aims to estimate the long-lasting effects of health on labor supply and whether the duration of poor health episodes matters. Prolonged poor health may reinforce labor supply responses by keeping individuals out of work for longer, affecting productivity and labor market attachment. To measure the effects of health and how they build over time, we develop a rich joint model of health and employment allowing for a flexible characterization of the dynamic health process, delayed effects of health on employment, and feedback effects of employment on health. Since the impact of health may depend on the institutional setting, we study how work incentives affect immediate and long-run labor supply responses to health. We also contrast the U.K. and U.S. to discuss the role of the different institutions in driving results in each country. The model is estimated on ELSA and HRS data for the U.K. and U.S., respectively.