Association for Public Policy Analysis & Management

In this paper we explore three related research questions. One, do early life (childhood) differences in mental, physical, and general health influence life cycle earnings and employment? Two, if so, is there a difference in the effect of the long run consequences of mental compared to physical or general health? And three, if there are large and consistent differences in the effects of mental versus physical or general health, are they influenced by public policy? We ask this question using a comparison of Beveridge versus Bismarck systems. Our analysis attempts to further the research of Goodman, Joyce and Smith who asked similar questions for Great Britain in an article published in PNAS in 2011.  We use individual-level data from the first four waves of the Survey of Health, Ageing and Retirement in Europe (SHARE), a multidisciplinary and representative cross-national panel of the European population aged 50+ for our analysis. Our research extends Goodman, Joyce and Smith in that we 1) include 13 countries in our analysis and 2) use full life cycle earnings rather than earnings at only four ages. These extensions permit analysis of the consistency across countries in effects as well as allow us to address policy implications. Our measure of general health is the commonly used self-reported five point scale, excellent to poor, which we convert and use those who report the lowest category of health, poor health. Our measure of physical health is created from a polychoric Principal Component Analysis (PCA) and includes count variables for respiratory problems, infectious diseases, cardiovascular diseases, disorders of the sense organs, , and other serious health conditions an individual suffered before age 16. We keep the first principal component, and create a dummy variable indicating whether or not an individual is in the bottom or worst two percentiles.  Our measure of mental health is based on responses to questions of whether or not the individuals experienced emotional, nervous or psychiatric problems, or epilepsy fits or seizures or symptoms of depression that lasted at least 2 weeks before age 16. Our  results show that, once  childhood mental and physical health problems are taken into account, there is very little evidence that childhood general health (poor SRH) has an impact on life cycle wages and full-time work. For wages, our results show that childhood mental health matters more than childhood physical health, mainly because its effects appear earlier in the working life, and persist until the age of retirement. The results for full-time work, while more mixed, suggest that childhood mental and physical health have similar effects over most of the work career, but that the effect of mental health is larger at the end of working life. Our comparison of results for Bismarck versus Beveridge countries suggests that the negative effects of mental health are greater in Bismarck than Beveridge countries, a finding consistent with the more equalitarian structure of the Beveridge systems.