Working Paper: CEPR ID: DP17713
Authors: Carl Johan Dalgaard; Casper Worm Hansen; Holger Strulik
Abstract: We construct a cohort-based frailty index for 181 countries over the period 1990-2019. We use this macro measure of physiological aging to estimate the impact of deteriorating health on labor force participation. Our three-dimensional panel framework, in which the unit of observation is a cohort in a given country at a given age, allows us to control for a range of unobserved factors. Our identification strategy further exploits a compensating law of physiological aging to account for reverse causality. We find a negative effect of physiological aging on labor market participation: a one percent increase in the frailty index leads to a reduction of labor force participation of about 0.6 percentage points. Since health deficits (in the frailty index) are accumulated at a rate of about 3 percent per year of life, almost all of the age-related decline in labor force participation can be motivated by deteriorating health.
Keywords: health
JEL Codes: I10; I15; J21; J26; E24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Labor market participation at later ages (J26) | Health deficits at the start of work life (I12) |
| Chronological age (J14) | Labor supply decisions (J22) |
| Physiological aging (J14) | Labor market participation (J29) |
| Health deficits in frailty index accumulate (I12) | Labor market participation (J29) |