Academic journal article Australian Journal of Labour Economics

Health Status and Labour Force Status of Older Working-Age Australian Men

Academic journal article Australian Journal of Labour Economics

Health Status and Labour Force Status of Older Working-Age Australian Men

Article excerpt

Abstract

This research uses the Household, Income and Labour Dynamics in Australia (HILDA) Survey to investigate the impacts of health on labour force status of older working-age Australian men. We estimate a model that exploits the longitudinal nature of the data and takes the correlation between the two error terms in the health and labour force status equations into account. The results show that controlling for unobserved heterogeneity and the correlation between the two equations is important. It is also found that any restriction on the correlation between the two equations appears to lead to underestimation of the direct health effects.

(ProQuest: ... denotes formulae omitted.)

1. Introduction

Concerns regarding early retirement by older working-age men combined with an ageing population have led many industrialised nations to develop policies encouraging older male workers to remain in the labour force. Due to its direct impact on productivity and indirect effect on the preference between income and leisure, health plays an important role in individuals' labour supply decisions (Currie and Madrian, 1999). A good understanding of how health influences labour force participation among older workers would facilitate the development of effective policies, aimed at keeping older workers in the labour market, and result in a better estimate of the costs of health limitations to the economy (Chirikos, 1993).

The effect of health on labour market activity of older male workers has been under extensive examination in the US and other industrialized countries, with the general finding that health has a significant effect on labour force participation (e.g. Disney et al., 2006; Au et al., 2005; Campolieti, 2002; Dwyer and Mitchell, 1999; Stern, 1989; Sickles and Taubman, 1986). Most previous studies rely on cross-sectional data, with the exception of Disney et al. (2006), Au et al. (2005) and Sickles and Taubman (1986). The current study contributes to the literature by using the longitudinal nature of panel data, which allows better control for unobserved heterogeneity, decomposing it into a time-variant and a time-invariant component. Therefore, more efficient estimates for the health effects on labour force status can be provided using these data than a cross-sectional analysis could.

Since it is highly likely that similar unobserved factors affect both health and labour force status, we estimate a model that takes into account the correlation between the two error terms in the health and labour force participation equations. This controls for the potential endogeneity of the health variable arising from unobserved heterogeneity. The results show that controlling for the unobserved heterogeneity and the correlation between the two equations is important. That is, the estimated variances of the unobserved heterogeneity terms are significantly different from zero in both equations and the two error terms are found to be correlated. It is also found that treating health as an exogenous variable leads to underestimation of its direct effect on labour force participation.

The current study also serves to provide further empirical evidence on the effect of health on labour force status in Australia. Despite a large body of overseas literature, there are relatively few Australian studies on this issue. Cai and Kalb (2006) used the first wave of the Household, Income and Labour Dynamics in Australia (HILDA) Survey, finding that health has a significant effect on labour force participation for younger and older men and women, with the reverse effect of labour force status on health only evident for younger men. Using the 1998 Survey of Disability, Ageing and Carers (SDAC), Wilkins (2004) found that the presence of a disability decreases the probability of participation in the labour force by 0.24 for males and 0.20 for females. The disability status in SDAC is derived from a combination of long-term health conditions and specific activity restrictions, and thus is a relatively narrow measure of health. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.