Association for Public Policy Analysis & Management

According to existing literature, early-life health has long-lasting effects on labor market outcomes later in life such as earnings and work effort. But does this hold for alternative dimensions of health and does this hold regardless of the health care system in a country? In this paper, we attempt to shed light on these questions. We start with the question whether three alternative dimensions of health (mental health problems, physical health problems and poor general health) by age 15 have similar (or different) influences on life time earnings. Second, we ask whether the estimated effects of early health problems on life time earnings are influenced by the health care system in which the child lived. Our expectation is that earnings are reduced by early health problems, especially mental health problems and that the system does make a difference with the most generous system tied to the smallest long term negative effects.

Our measures of health problems are retrospective while our measure of earnings is based on answers to an on-going panel data survey and include data over ages 25 to 64. We use individual-level data from the first four waves of SHARE, a multidisciplinary and representative cross-national panel of the European population aged 50+. Waves 1 (2004/05), 2 (2006/07) and 4 (2011/12) include information on sociodemographic background characteristics, current health and socioeconomic status (education, employment, and income). Most of our data are from the third wave, SHARELIFE (2008/09), which is a retrospective survey conducted in 13 European countries as part of the SHARE project. We use the country of childhood for those in our sample and a four-way system to characterize their country’s health care systems. These include full coverage; considerable use of co-payments; limited coverage and Socialist (full coverage but limited care). Healthcare systems with full coverage included in our data are Sweden, Denmark and United Kingdom. Those with lots of cost sharing include Austria, Belgium, (West) Germany, Finland, France, Norway and Switzerland. Countries with less than full coverage include Greece, Italy, Netherlands, Portugal and Spain, and those with full coverage but limited care (Socialist at the time our sample members were children), include Czechoslovakia, Hungary, East Germany, Russia and Poland. In terms of particular health problems, we find that the early experience of poor general health and mental health have stronger negative ties to lifetime earnings than physical health. Our results for health care policy find that for those who experienced poor health as a child, those growing up under Socialist health care systems and those in systems characterized by less than full coverage experience the greatest earnings losses as an adult. In contrast, those growing up in a system characterized by full coverage do not experience any earnings loss. For those growing up with an early mental health problem, those living under a Socialist policy again experience the greatest loss of earnings over the life cycle. In this case however, all those who had an early mental health problem experience sizeable penalties in terms of lifetime earnings.