the price of the disease.
How does health change people's income destiny?
Azadeh Khorramimogadam / author of the publication.
When talking about the economic consequences of the disease, the cost of medicine, treatment and visits to medical centers usually come to mind. But the economic cost of the disease goes far beyond the cost of treatment. Illness may reduce work capacity, lower the probability of work, limit work opportunities and even affect the probability of a person's survival. On the other hand, a person with multiple physical problems will not be able to use all of his abilities, even if he has the right education and skills. Of course, the relationship between health and income is not one-way. Education, family conditions and work characteristics also affect both.
The empirical results of the article show that the increase in health problems is associated with a significant decrease in employment and wages. The researchers' estimates indicate that adding a health problem to the frailty index reduces the probability of employment by 1.6 percent and lowers the hourly wages of working people by 2 percent on average. Illness can not only reduce a person's income per hour of work, but it can also reduce the probability of being in the labor market. As a result, the person may be paid less and may not have any income from work during certain periods.
To examine these long-term consequences, the authors build an economic model of the life cycle. This model takes into account people's decisions about employment, savings, consumption and claiming disability benefits at different stages of life. In this framework, people are not the same in terms of their health and risks. A health condition can affect work productivity, out-of-pocket medical expenses, likelihood of death, work difficulties and likelihood of receiving disability benefits. The researchers adapted the model to US data to measure the long-term consequences of differences in health status.
One of the important findings of the article is related to the role of disability insurance programs in the formation of lifetime income inequality.