Health, Human Capital, and Life Cycle Labor Supply

Hokayem, Charles; Ziliak, James P.

doi:10.1257/aer.104.5.127

“…9 It may thus appear tempting to let health deficits enter the human capital equation. The direct impact of health on wages, however, is estimated to be rather small (Jaeckle and Himmler, 2010;Hokayem and Ziliak, 2014). Declining mental capabilities are insufficiently approximated by declining bodily deficits.…”

Section: 4mentioning

confidence: 99%

The Return to Education in Terms of Wealth and Health

Strulik

¹

2016

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract. This study presents a new view on the association between education and longevity. In contrast to the earlier literature, which focused on inefficient health behavior of the less educated, we investigate the extent to which the education gradient can be explained by fully rational and efficient behavior of all social strata. Specifically, we consider a life-cycle model in which the loss of body functionality, which eventually leads to death, can be accelerated by unhealthy behavior and delayed through health expenditure. Terms of use: Documents inIndividuals are heterogeneous with respect to their return to education. The proposed theory rationalizes why individuals equipped with a higher return to education chose more education as well as a healthier lifestyle. When calibrated for the average male US citizen, the model motivates about 50% percent of the observable education gradient by idiosyncratic returns to education, with causality running from education to longevity.The theory also explains why compulsory schooling has comparatively small effects on longevity and why the gradient gets larger over time through improvements in medical technology.

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“…Heckman (1974) offers a neoclassical answer to Thurow (1969) by showing that a consumption hump may emerge from a model with perfect credit markets if consumers face an exogenously given age-dependent wage rate, are free to choose their hours of work, and obtain utility from both consumption and leisure. Under the reasonable assumptions that consumption and leisure are substitutes (e.g., Hokayem and Ziliak 2014) and the return on savings exceeds the time preference rate of the agent (as in mainstream asset pricing models), a consumption hump occurs in Heckman's model if the wage profile is hump-shaped, and then the consumption peaks later than the wage rate. For his arguments to work, it is crucial that the agent is free to choose his hours to work, however Carroll and Summers (1991) and Browning and Crossley (2001) conclude that realistic consumption humps can only be explained by unrealistically pronounced labor supply patterns.…”

Section: Related Literaturementioning

confidence: 99%

“…In our two-good setting it implies that goods and leisure are substitutes, which finds strong empirical support, cf. Hokayem and Ziliak (2014). The condition (7) is valid, for example, in risk-free versions of consumption-based asset pricing models where the equilibrium interest rate equals the sum of the time preference rate (of the representative agent) and the product of the consumption growth rate and the reciprocal of the EIS (of the representative agent).…”

Section: The Modelmentioning

confidence: 99%

Consumption and Wage Humps in a Life-Cycle Model with Education

Kraft

¹

,

Munk

²

,

Seifried

³

et al. 2014

SSRN Journal

0

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Non-Technical SummaryIt has been documented that consumption expenditures of individuals are hump shaped over the life cycle with a peak around the age of 45-50 years. These findings contrast the classical, frictionless life-cycle consumption-savings models that predict either a monotonically increasing, monotonically decreasing, or flat consumption profile depending on parameter values. We present and explicitly solve a parsimonious and transparent model in which the optimal consumption of the individual can exhibit a hump-shaped life-cycle pattern. The key model feature generating the consumption hump is endogenous educational decisions. The agent decides how much time to spend on education. He benefits from education since it has a lasting positive effect on the wages he earns. On the other hand, by spending time on education the agent forgoes leisure, which leads to disutility. In addition, education might require a monetary investment by the agent. The endogenously determined price of leisure relative to consumption varies over life. Enjoying an extra hour of leisure means spending one hour less on education, which reduces wages in all future. The present value of the foregone wages is larger for young than for old agents. Therefore, the relative price of leisure decreases over life. The consumption bundle of perishable goods and leisure is optimally tilted towards more perishable consumption and less leisure early in life, but less perishable consumption and more leisure later in life. When we embed this mechanism in a setting where the return on savings exceeds the agent's subjective time preference rate, a hump-shaped pattern for perishable consumption emerges.Our model is set up in continuous-time with an agent maximizing expected life-time CobbDouglas utility of the consumption of goods and leisure. At any point in time before retirement the agent has to decide upon his consumption of goods and the fraction of time spent on education. While time spent on education reduces leisure, it also increases wages in all future albeit with the impact being exponentially decaying over time. For parsimony (but not unlike the situation in European labor markets), the agent is assumed to work a constant fraction of time throughout life so his labor income is affected by education in the same way as the wage rate. After retirement, the agent receives a fixed income given by a fraction of labor income just before retirement and decid...

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“…In effect our view is that patients in the US have little ability to know the cost of their treatment ex ante and to make a decision whether or not to bear that cost. This view contrasts with the literature that treats medical expenditures as endogenous inputs into the health production function (e.g., Hokayem and Ziliak (2014), Jung and Tran (2016) 4 We also use the CEX, CPS and PSID to estimate various moments that are used in the calibration. 5 We thank Dr Philip Haywood for his assistance in classifying health shocks based on the ICD codes.…”

Section: Introductionmentioning

confidence: 97%

“…2 These two features have not been brought together in a combined life-cycle framework, with the notable exceptions of Hokayem and Ziliak (2014) and Hai and Heckman (2015). must be borne by the agent.…”

Section: Introductionmentioning

confidence: 99%

Health Shocks and the Evolution of Consumption and Income over the Life-Cycle

Capatina¹,

Keane

²

,

Maruyama³

2018

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This paper studies the effects of health on earnings dynamics and on consumption inequality over the life-cycle. We build and calibrate a life-cycle model with idiosyncratic health, earnings and survival risk where individuals make labor supply and asset accumulation decisions, adding two novel features. First, we model health as a complex multi-dimensional concept. We differentiate between functional health and underlying health risk, temporary vs. persistent health shocks, and predictable vs. unpredictable shocks. Second, we study the interactions between health and human capital accumulation (learning-by-doing). These features are important in allowing the model to capture the degree to which, and the pathways through which, health impacts earnings and consumption patterns. They are also very important in estimating the value of health insurance and social insurance. A key finding is that health shocks account for roughly half of the growth in offer wage inequality over the life cycle. Eliminating health shocks leads to a 5.5% decline in the variance of the present value of earnings across all individuals. We thank Dr Philip Haywood for excellent assistance in classifying health shocks based on the International Classification of Diseases (ICD) codes.

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Health, Human Capital, and Life Cycle Labor Supply

Cited by 27 publications

References 11 publications

The Return to Education in Terms of Wealth and Health

The Return to Education in Terms of Wealth and Health

Consumption and Wage Humps in a Life-Cycle Model with Education

Health Shocks and the Evolution of Consumption and Income over the Life-Cycle

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