03/07/2009
Health Impairments, Work Limitations and Earnings

Health Impairments, Work Limitations and Earnings

Distinguishing between healthy and heath-impaired employees who have or do not have work limitations, the unobserved productivity effect of health is separated from discrimination.

Authors: Drydakis Nick
Views: 3262

People with health impairments are at risk of social exclusion because of the physical, financial, and attitudinal barriers that they face in the labor market. Findings from the United States and Great Britain indicate that the unemployment probabilities of those with health problems are higher than those of individuals without health problems, while those who are employed earn less (Johnson and Lambrinos, 1985; Baldwin and Johnson, 1994, 2000; Kreider, 1999; Kidd et al., 2000; DeLeire, 2001; Acemoglu and Angrist, 2001; Campolieti, 2002; Kruse and Schur, 2003; Jones et. al., 2006). Ill health, however, is a restriction or inability rather than a demographic characteristic, and there is not a single, consistently used definition or method for classifying it. Hence, pledge generalizations are not the case.

The economic analysis of workers living with ill health within the labor market has been neglected in Greece. An illuminative exemption is the 2002 study undertaken by the General Secretarial of National Statistical Service of Greece, but this study lacks wage data. The main findings suggest that 16.2% of the total populations are health impaired, and among them, 83% are economically inactive as compared to the 58% of the total population. Half of them, 53.6%, claim employment problems due to their health status, and 40.2% feel that they are socially excluded. These figures are especially striking when considered in the context of recent legislative and other reforms aimed at securing improvements in the labor market position of health-impaired and disabled individuals. In 2005, Greece adopted the European Antidiscrimination Directive (EC/78/2000), perceived as a hallmark in the quest of individuals with ill health for equal access to labor market opportunities. The national Antidiscrimination Legislation (3304/2005) helps to protect people with health problems against discrimination in the workplace. Protection is provided against discrimination in recruitment, employment, dismissal and the like for a reason related to ill health. A failure to comply with these requirements is itself an act of unlawful discrimination unless it can be justified by a reason that is both material to the circumstances of the case and substantial.

The aim of the current research is to examine for the first time in Greece to what extent differences in earnings for health-impaired male workers can be attributed to productivity differences and/or discrimination. Work productivity is an important determinant of labor force behavior. Unlike minority groups that are afforded protection under the law, persons with health impairments are likely to have health problems that limit their capacity for some types of work and their earnings (Baldwin and Johnson, 1994). In the current research, as in DeLeire (2001) and Jones et al. (2006), to distinguish between productivity differences and discrimination against health impaired people, the Athens Area Study 2008 sample separates individuals into three groups: the healthy, the health-impaired who report that their health status limits their work capacity in a sense that affects the type and amount of work that they can do; and the health- impaired who report that their productivity at work is unaffected by their health condition.

Following Jones et al.’s (2006) reasoning, assuming that health-impaired employees with no work limitations do not have lower productivity relative to healthy workers as a result of their health status, we can interpret the assigned wage difference as an estimate of discrimination. However, if the degree of discrimination is assumed to be the same between health-impaired employees having work limitations and health- impaired employees having no work limitations, the wage penalty of the work-limited group less the measure of discrimination for the non-work-limited group may be considered as an estimate of the lower productivity of the group having work limitations relative to the healthy group that is not captured by the measured characteristics included in the empirical model. Thus, to advocate for the existence of discrimination against health-impaired workers, intermediate steps should be followed.

Some studies, including Nagi (1979) and Stern (1989), have concluded that self- reports of health conditions are unbiased. However, whether an individual has a health problem and whether it is work limiting are both subjective, and there may be social and economic incentives to misreport health status (Bound, 1991). This major complicating factor, which has received growing attention, is the endogeneity of self-assessed health measures. Much of the literature suggests that we should be especially skeptical about non-workers’ responses to questions about health status since certain incentives may lead them to systematically over-report the extent to which a health condition limits their work capacity. Health-related work limitations may be one of the few socially acceptable reasons for men younger than normal retirement age to be out of the labor force. Furthermore, the subjective nature of self-reported health also means that the responses may not strictly be comparable across individuals, and measurement errors are possible, which may also render health measures endogenous.

In the current research, by using detailed information on objective health conditions available in our sample, we are able to consider the potential bias associated with self-reported health status when estimating the impact of health impairments on the labor market for the entire working age population. This is an application of the well- known switching regression model proposed by Lee et al. (1980), Maddala (1983), and Amemiya (1985) and discussed heavily in the applied literature. In the current modeling, we also have to deal with sample selection bias associated with individuals’ employment/unemployment status by utilizing Heckman’s (1974) selection model. Without controlling for sample selection, any differences in the employment probabilities may actually be confounded by variations between characteristics that affect individuals’ labor supply decisions. 

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