# 11-143/2 (2011-10-07)

Pilar Garcia-Gomez, Erasmus University Rotterdam; Hans van Kippersluis, Erasmus University Rotterdam; Owen O'Donnell, Erasmus University Rotterdam; Eddy van Doorslaer, Erasmus University Rotterdam
Health, Disability, Employment, Income, Propensity Score Matching
JEL codes:
I10, J21, J26

Ill-health can be expected to reduce employment and income. But are the effects sustained over time? Do they differ across the income distribution? And are there spillover effects on the employment and income of the spouse? We use matching combined with difference-in-differences to identify the causal effects of sudden illness, represented by acute hospitalisations, on employment and income up to six years after the health shock using linked Dutch hospital and tax register data. On average, an acute hospital admission lowers the employment probability by seven percentage points and results in a 5% loss of personal income (30% for those entering disability insurance) two years after the shock. There is no subsequent recovery in either employment or income. The distribution of ill-health contributes to income inequality: a health shock is both more likely to occur and to have a larger relative impact on employment and income at the bottom of the income distr ibution. There are large spillover effects: household income falls by 50% more than the income of the disabled person, and the employment probability of the spouse is reduced by 1.5 percentage points. The negative spousal employment effect is larger for male than for female spouses and in higher income households.