The Effects of Health Shocks on Labour Market Exits: Evidence from the HILDA Survey

Abstract

This paper analyses the relationship between ill-health, health shocks and early labour market exits among older working individuals. We represent the transition to non-employment as a discrete-time hazard model using a stock-sample from the first six waves (2001-2006) of the Household, Income and Labour Dynamics in Australia (HILDA) Survey. Our results show that health shocks are key determinants of early exit choices. For men, negative shocks to health increase the hazard of becoming non-employed by 50 to 320 per cent, whereas for women, health shocks increase the hazard of an early exit from the labour market by 68 to 74 per cent. These findings are confirmed by both a measure of health limitations and a measure of latent health obtained using pooled ordered probit models as well as for two alternative definitions of health shocks.