Out for Good: Labor Market Effects of Transitory and Persistent Health Shocks

50 Pages Posted: 22 Mar 2022 Last revised: 17 Apr 2023

See all articles by Mattis Beckmannshagen

Mattis Beckmannshagen

German Institute for Economic Research (DIW Berlin) - German Socio Economic Panel

Johannes Koenig

German Institute for Economic Research (DIW Berlin)

Date Written: April 12, 2023

Abstract

We introduce a novel method of deriving health shock indicators based on measures directly capturing reduced working capacity due to bad health: sick days and hospitalizations. We derive two shock indicators using k-means clustering to address shock heterogeneity. While based on the intensity of the shock, the two shock indicators are best described as transitory and persistent, as we find large differences in post-shock dynamics. An event study shows that persistent shocks induce large and permanent negative employment effects, which impact household net incomes. Transitory shocks induce temporary, minor employment effects with adjustments on the margin of hours worked, which leave household net incomes unaffected.

Keywords: labor supply, health shocks, event study, k-means clustering

JEL Classification: I10, J22, H51

Suggested Citation

Beckmannshagen, Mattis and Koenig, Johannes, Out for Good: Labor Market Effects of Transitory and Persistent Health Shocks (April 12, 2023). Available at SSRN: https://ssrn.com/abstract=4036482 or http://dx.doi.org/10.2139/ssrn.4036482

Mattis Beckmannshagen (Contact Author)

German Institute for Economic Research (DIW Berlin) - German Socio Economic Panel ( email )

DIW Berlin
Berlin, Berlin 14191
Germany

Johannes Koenig

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

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