Education heads off earning loss from health shocks

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Education can help workers lessen earnings losses from unforeseen health events, according to a new Upjohn Institute working paper using data from Chile. The paper, “Health Shocks, Human Capital and Labor Market Outcomes,” from Francisco Parro of Universidad Adolfo Ibáñez and R. Vincent Pohl of University of Georgia, was funded by an Early Career Research Award grant.

Man in hospital bedEarlier research has shown how education affects health and how health affects labor markets, but not specifically how education might influence the effect of unforeseen health events on the labor market. This paper finds that higher levels of education may reduce the negative effects of health events on earnings, even controlling for factors associated with more-educated workers.

The researchers used administrative data from the Chilean unemployment insurance system and discharge records from all the country’s hospitals. They limited their sample to stably employed men who experienced a health event requiring hospitalization but who had not been hospitalized in the previous year.

Overall, the paper finds that unforeseen health events reduce monthly earnings between 22 and 39 percent. However, workers with a high school degree lose 0.6 to 3.2 percent less than the least-educated workers; those with postsecondary education lose 3.3 to 17.3 percent less earnings.

This mitigating effect of education remains even considering factors such as health insurance quality, industry type and past health events, suggesting that it’s not just the fact that more-educated workers cluster in safer jobs with better health insurance.

The paper’s findings have policy implications for emerging economies such as Chile’s, Parro and Pohl write, as increasing education can not only raise workers’ earnings but also help them deal with health shocks.

Read "Health Shocks, Human Capital and Labor Market Outcomes."

Research Topics: Labor Market Issues