Conference Paper Understanding Society Scientific Conference 2015, 21-23 July 2015, University of Essex, Colchester, UK
Acute health shocks and labour market exits
22 Jul 2015
The ﬁnancial consequences of early labour market exit can be substantial and long-lasting. This paper investigates the labour supply response to acute health shocks deﬁned by the incidence of cancer, stroke, or heart attack, for working age individuals in the UK, a group rarely considered in previous studies which generally focus on older individuals. We draw on data from Understanding Society which oﬀers a unique combination of a large sample, a panel dimension together with a broad range of socio-demographic, health and labour market information. Our identiﬁcation strategy exploits uncertainty in both the occurrence and timing of an acute health shock. We follow individuals until they experience either a ﬁrst occurrence of a health shock, or a re-occurrence, and compare their labour supply responses to those observed in a control group. Controls are deﬁned through a combination of coarsened exact matching and parametric propensity score estimation. The panel dimension of the data allows us to condition on unobserved individual heterogeneity. Our results indicate that, on average, experiencing an acute health shock signiﬁcantly reduces labour market participation, with a stronger response to an additional, as opposed to a ﬁrst, shock. In general younger workers of both genders display a stronger labour market attachment than older counterparts conditional on a health shock. Older and more educated women exhibit the strongest retraction despite experiencing less disabling shocks. This suggests an important role for preferences, ﬁnancial constraints, and intra-household division of labour in explaining labour supply adjustments.