Health, wealth, and informality over the life cycle

What is the impact of bad health on labor market trajectories, consumption, and wealth accumulation in a developing country characterized by a large informal sector and strong inequalities? We develop and estimate a heterogeneous agents model with two sectors to quantify the impact of health shocks...

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Bibliographic Details
Published in:Journal of economic dynamics & control 2021-08, Vol.129, p.104170, Article 104170
Main Authors: Albertini, Julien, Fairise, Xavier, Terriau, Anthony
Format: Article
Language:English
Subjects:
Economics and Finance
Health
Humanities and Social Sciences
Informality
Life cycle
Wealth
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Summary:What is the impact of bad health on labor market trajectories, consumption, and wealth accumulation in a developing country characterized by a large informal sector and strong inequalities? We develop and estimate a heterogeneous agents model with two sectors to quantify the impact of health shocks and to disentangle the channels through which they affect wealth and consumption over the life cycle in South Africa. We show that the effects of health shocks are significant and strongly depend on the job status of individuals. For formal workers, bad health reduces labor efficiency, which translates into lower earnings. For informal workers and the non-employed, the shock lowers the job finding rate and increases job separation into non-employment, which results in a surge in non-employment spells. As the non-employed are more likely to be unhealthy, health shocks generate a vicious circle.
ISSN:0165-1889
1879-1743
DOI:10.1016/j.jedc.2021.104170