On the Role of Health in Climbing the Income Ladder: Evidence from China
53 Pages Posted: 8 May 2020 Last revised: 3 Dec 2020
Date Written: December 1, 2020
This paper uses two large panel data sets in China to study the effects of a health shock on household income mobility from 1991-2016. We compare outcomes of households with a member who receives a health shock with households that do not receive any health shocks. To do so, we match on demographic and worker characteristics of household members. At the aggregated level, a health shock lowers the probability of "getting out of the low-income trap" by 8.4 percentage points. At the household level, a health shock lowers household income per capita by 12.8%, and income position by 3.2 percentiles. Households that receive a health shock do not adjust labor supply at the intensive margin, but all household members' hourly wages decrease substantially. Households who become poor due to a health shock continue to exhibit lower income mobility in the following years.
Keywords: Income Mobility, Health Shock, Low-Income Trap, China
JEL Classification: D31, H0, I14
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