Elsevier

Journal of Health Economics

Volume 20, Issue 5, September 2001, Pages 781-796
Journal of Health Economics

The impact of health status on the duration of unemployment spells and the implications for studies of the impact of unemployment on health status

https://doi.org/10.1016/S0167-6296(01)00087-XGet rights and content

Abstract

This paper examines the impact of health status on the duration of unemployment spells and finds that individuals with impaired health will have significantly longer unemployment spells. These longer unemployment spells will result in the stock of unemployed being composed of a larger proportion of individuals with impaired health than the stock of employed. Although, this difference in composition between the stock of unemployed and stock of employed can account for some of the observed difference in mortality rates, it cannot explain all of the difference observed in earlier studies.

Introduction

Health policy has traditionally focused on the role of health care in maintaining health status, but the primacy of health care in health policy has been questioned. Other factors such as position in the social hierarchy or social networks might be equally, or even more, important. Health status is too complicated to be explained by a simple model of health care. One socioeconomic factor that has been examined for its impact on health status has been unemployment. A causal relationship between unemployment and health status has implications for economic policy. Any decision made by the government that has an impact on the unemployment rate requires an understanding of the full social costs of unemployment. If an increase in the unemployment rate reduces health status then the change in health status needs to be considered when making decisions. Previous papers have examined this issue with both aggregate and microlevel data sets using a variety of econometric techniques. Using a unique data set, I instead examine the effects of health status on unemployment, specifically the impact of impaired health on the duration of unemployment spells. The implication for the results reached in previous work is that selection bias into the stock of unemployed may be an important problem which has led to overestimates of the impact of unemployment on health. This selection bias needs to be dealt with in order to accurately measure the social cost of unemployment.

The methodology of this paper proceeds in two stages. First, the impact of impaired health on the duration of unemployment spells is estimated using a duration analysis framework. Second, given that there is a difference in the duration of unemployment spells by health status, the implied difference in the composition of the stock of unemployed and the stock of employed is estimated. The results show that impaired health significantly increases the length of unemployment spells. On this basis alone, therefore, the fraction of the stock of unemployed with impaired health is greater than the fraction of the stock of employed. These results highlight the selection bias into the stock of unemployed that needs to be considered when measuring the impact of unemployment on health status.

Section snippets

Background

The literature on the relationship between health and unemployment consists of two main streams of research. The seminal paper on unemployment and health by Brenner (1979) motivated the first stream of research which is characterized by the use of aggregate data to estimate the correlation among aggregate variables. Brenner found that current and lagged unemployment rates had a significant impact on mortality rates. Other papers in this stream of research include McAvinchey, 1984, McAvinchey,

Methodology

The analysis of unemployment spells starts by assuming that individuals will leave unemployment if the value of employment is larger than the value of remaining on unemployment. The value of employment is a function of net earnings, that is the difference between earnings and cost of employment, wi, personal characteristics, zi, and the length of time spent on unemployment, TU, orViE=VE(wi,zi,TU)Net earnings increase the value of employment. Personal characteristics could have a direct and

The data set

The data are from the Canadian Out of Employment Panel (COEP) 1995 survey which was commissioned by Human Resources Development Canada (HRDC). The COEP 1995 survey sample is composed of individuals who received a Record of Employment (ROE) during either one of two periods, 29 January–1 April, cohort 1, or 23 April–3 June, cohort 2, and had a social insurance number ending in “5”. A ROE must be submitted by the employer to HRDC whenever a job termination occurs and allows the beginning of any

Hazard estimation

Table 4 presents the results from four specifications of the hazard function. Two functional forms of the independent variables for health status are used. The first functional form includes interaction terms of the two health status indicators. The interaction terms are included because there are a number of individuals who reported both leaving the ROE job because of illness and having a health limitation. The second functional form includes separate indicators for the presence of a health

Conclusion

Numerous studies have found an empirical link between unemployment and mortality rates. One hypothesis is that unemployment decreases health status, but this relationship could be observed for three reasons. First, unemployment does decrease health status. Second, individuals with impaired health status are more likely to become unemployed and, therefore, comprise a larger proportion of the stock of unemployed. Third, individuals with impaired health are more likely to remain unemployed and,

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