A growing body of literature emphasizes the role of childhood health in shaping labor market outcomes. Little is yet known whether poor health during childhood influences later outcomes by restricting skill formation, or by mainly affecting future health. To address this issue, this paper formulates and estimates a model of the joint dynamics of skills and health over the lifecycle. The estimated model is used to quantify the relative importance of the channels through which childhood health conditions affect labor market outcomes. In the model, individuals are endowed with a multi-dimensional human capital bundle that consists of skills and health. The human capital bundle evolves over time according to a production technology, with influences from endogenous decisions regarding schooling, labor supply, and occupations. The results indicate that the most important channel accounting for mental health-related earnings gaps is the skill channel. About 60-65% of the earnings gaps can be explained by the effects of childhood mental health conditions on skill formation. The effects of childhood health status on health formation are also found to play important roles.
Existing evidence indicates that certain health conditions during childhood affect schooling outcomes. However, little is known as to whether and how such influences persist into adult skills beyond academic skills. By adopting a multidimensional skills/tasks approach, this paper documents the link between childhood health conditions and skills used in the labor market. To obtain objective measures of childhood health status, this paper exploits the structure of sequential medical examinations conducted in the 1958 National Child Development Study. The results point to the importance of childhood health conditions in generating occupational sorting in the labor market. In particular, I find that those who had mental disorders before age 16 tend to select into less cognitive skill demanding occupations while those who had physical disorders sort into less manual skill demanding occupations. The observed variation in occupation choices is found to be an important predictor of health-related earnings gaps.
Estimating how health affects earnings is a central task to designing social insurance programs against health risks. Numerous studies estimate health-related earnings losses assuming that the effect of health on earnings is uniform across jobs and workers. Adopting a task-based approach, this paper challenges these views and documents that the effect of poor health status on earnings substantially varies depending both on workers' skills and the nature of tasks performed by workers.