Working Paper: NBER ID: w25264
Authors: Daniel Dench; Michael Grossman
Abstract: We investigate two-way causality between health and the hourly wage by employing insights from the human capital and compensating wage differential models, a panel formed from the National Longitudinal Survey of Youth 1997, and dynamic panel estimation methods in this investigation. We uncover a causal relationship between two of five measures of health and the wage in which a reduction in health leads to an increase in the wage rate but find no evidence of a causal relationship running from the wage rate to health. The former result is consistent with a framework in which a large amount of effort in one period is required to obtain promotions and the wage increases that accompany them in subsequent periods. That effort may cause reductions in health and result in a negative effect of health in the previous period on the current period wage. The finding also is consistent with a model in which investments in career advancement compete with investments in health for time—the ultimate scarce resource. The lack of a causal effect of the wage on health may suggest that forces that go in opposite directions in the human capital and compensating wage differential models offset each other.
Keywords: health; wage; causality; human capital; compensating wage differential
JEL Codes: I20; J24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Reduction in health (I14) | Increase in wage rate (J31) |
| Increase in wage rate (J31) | NA (Y70) |
| Health (previous period) (I12) | Wage (current period) (J31) |
| Wage (J31) | Health (I19) |