The Effect of Health Shocks on Labor Market Outcomes

The literature in the field of health and labor economics provide abundant evidence of relationship between health shocks and employment in developed countries (Spain, China Sweden, Australia, United Kingdom, Netherlands etc.) . In Russia this issue is studied is much less. Nowadays, there is absence of papers studying the effect of health shock in Russia. This study tests three hypotheses: (i) health shock are significantly determines employment, (ii) the effect is heterogeneous by gender and age and (iii) more severe health shock lead to a more substantial effect. All hypotheses are confirmed. Health shocks are determined by any negative changes in self-assessed health. I use the data from Russian Longitudinal Monitoring Survey HSE (RLMS-HSE) and three econometric approaches: OLS, OLS with fixed effects and Difference-in-Difference combined with propensity score (Kernel) matching and reveal the strong negative effect of health shocks. The control and treatment group are formed on the basis of two 3-year sequences: treatment respondents are in a good health during 3 years, while treated respondents are in a good health in the first year, then they experience a health shock and their health is poor during the second and third years. Effect is stronger for males, weaker for females and manifested in the long-run period. Potential losses in the probability of being employed are from 4.1% to 5.1% for males and 5.9% for females for whole sample and from 5.2% to 8.5% for males for age group 40-59. Modeling health shocks as only severe health deterioration potential losses are increased by 9 times for men and 3 times for women. Difference in effects for man and women can be explained by different incentives and motivation for working. Generally, obtained coefficients are consistent with results in developed countries (on the average, 5-7%).