Research Paper ESCoE Discussion Papers 2021-03
Incorporating health status into human capital stocks: an analysis for the UK
11 Mar 2021
This study examines the impact of morbidity on human capital stocks (HCS) with an application to the UK from 1996 to 2018. It incorporates health status into the standard Jorgenson-Fraumeni lifetime earnings measure of HCS through its effect on absenteeism and presenteeism (lost productivity) by taking account of inactivity due to illness and modelling the impact of health on earnings and retirement behaviour. It employs the approach of estimating individual health indices, which reduce concerns for reporting and errors-in-variable bias, and takes account of individuals’ and spouses’ health as well as caring responsibilities due to adverse health of third parties. The results show that overall poor health leads to a reduction in HCS by about 12% in 2018, but shows a slight tendency to decrease over time, mostly driven by trends in inactivity due to long-term illness, and retirements for those aged over 50. There are significant impacts of poor health on earnings, especially for males, but the results show only a small impact on HCS from earnings as most people in poor health are not economically active. The results vary by qualification level, gender and age, with productive HCS reduced by about 45% for individuals aged 50 years or older with low qualifications.