Electronic Thesis and Dissertation Repository

Degree

Doctor of Philosophy

Program

Economics

Supervisor

Audra J. Bowlus

Abstract

The thesis consists of three chapters that study the interplay between skills and health in shaping labour market outcomes. I focus on two distinct but related issues: i) the wage losses among older workers due to work-limiting health conditions, and ii) the long lasting effects of childhood health conditions on human capital formation. Chapter two studies how health conditions among older workers affect their wages depending on the characteristics of their occupations. The U.S. Social Security Act defines disability as the inability due to health conditions to perform physically or mentally demanding tasks. To examine the potentially task-specific nature of work-limiting health conditions, I estimate a wage equation that allows health conditions to have heterogeneous wage returns depending on what kinds of tasks the workers conduct within their occupations. The estimation results, based on a panel dataset of older workers in the U.S., indicate that the magnitude of health-induced wage losses differs substantially across occupations depending on their task characteristics, contrary to the commonly used assumption that health is uniformly valued across occupations. I also show that about 60\% of the health-related wage gaps can be explained by the correlations between health and skills. This chapter further demonstrates that work-limiting health conditions are correlated with the time-varying components of multiple skills. This suggests that econometric models with single-dimensional, time-invariant unobserved heterogeneity may not be fully successful in isolating the influences of the correlations between health and skills. The third chapter investigates the link between childhood health conditions and skill formation. While existing evidence suggests that certain childhood health conditions affect schooling outcomes, little is known as to whether and how such influences persist into labour market skills beyond academic outcomes. By adopting a multidimensional skills/tasks approach, this chapter provides a set of new evidence regarding how childhood health conditions affect skills used in the labour market. To obtain objective measures of childhood health conditions, I exploit medical examinations conducted in the 1958 British National Child Development Study (NCDS). The results point to the importance of childhood health conditions in determining what kinds of occupations individuals pursue in the labour market. In particular, I find that those who had mental health conditions before age 16 tend to select into less cognitive skill demanding jobs while those who had physical health conditions sort into less manual skill demanding jobs. The observed variation in job selections are found as important predictors of the health-related earnings gaps. An important question is whether poor health during childhood influences later outcomes by restricting skill formation, or by mainly affecting future health. To further examine the sources of the earnings gaps associated with childhood health conditions, the fourth chapter develops and estimates a lifecycle model where childhood health conditions can affect formation of skills and health over the life course. The estimated model is used to quantify the relative importance of the multiple channels through which childhood health conditions may affect labour earnings. The results indicate that the most important channel accounting for mental health-related earnings gaps is the skill channel. About 60-65\% of the earnings gaps can be explained by the effects of childhood health conditions on skill formation. The effects of childhood health status on health formation are also found to play important roles.


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