What Do Wages Add to the Health-Employment Nexus? Evidence from Older European Workers

44 Pages Posted: 23 Mar 2013

See all articles by Manuel Flores

Manuel Flores

Universidade de Santiago de Compostela

Adriaan Kalwij

Utrecht University

Date Written: March 11, 2013


This paper adds to the empirical literature on health as an important determinant of employment at older ages by exploring the role in the health-employment nexus of the wage rates of 50 to 64-year-old workers. To do so, we use individual-level panel data from the Survey of Health, Ageing and Retirement in Europe to estimate a system of equations for health, wages and employment. Our model also takes into account both the potential for measurement error in the health variable and selectivity issues related to the wage equation. We find that for men (women) a one-unit (one standard deviation) increase in health yields, on average, a 7 (8) percentage higher hourly wage rate, resulting in a 2 (4) percentage point higher employment probability. We also show a direct impact of health on employment: a similar increase in health raises the employment probability of men (women) by 16 (13) percentage points. As regards differences between European countries, our findings suggest that for all country groups, the mediating role of wages in the health-employment nexus is relatively small while the direct impact of health on employment is relatively large and rather similar. Overall, our findings indicate only a minor role for disability income policies likes wage subsidies to encourage the employment of (older) workers with health limitations, but an instrumental role for policy aimed at helping employers accommodate these workers on the job and keep them employed at older ages.

Keywords: Health, wages, employment

JEL Classification: D00, I10, J14, J20, J30

Suggested Citation

Flores, Manuel and Kalwij, Adriaan, What Do Wages Add to the Health-Employment Nexus? Evidence from Older European Workers (March 11, 2013). Netspar Discussion Paper No. 03/2013-005. Available at SSRN: https://ssrn.com/abstract=2236899 or http://dx.doi.org/10.2139/ssrn.2236899

Manuel Flores

Universidade de Santiago de Compostela ( email )

Complejo Docente - Campus Universitario de Lugo
Lugo, A Coruña 15704

Adriaan Kalwij (Contact Author)

Utrecht University ( email )

Janskerkhof 12
Utrecht, 3512 BL

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