Bouncing back from health shocks: Locus of control and labor supply

Abstract

My findings provide clear evidence of personality differences in labour supply responses to health shocks amongst German men. When compared with men who have positive control beliefs, men with negative control beliefs are on average 100% more likely to drop out of the labour force after a health shock. This drop out is unrelated to early retirement. In addition, when compared with men who have positive control beliefs, men with negative control beliefs work on average 12% fewer hours per week over the year when experiencing a health shock. These behavioural differences are strongest for men from low socioeconomic backgrounds, men who do not have access to private health insurance, and men who experience high intensity shocks to their health. Different labour-supply responses are also observed for conscientiousness and risk tolerance, traits that have been linked with willingness to invest and treatment compliance.Teaching individuals the ability to interpret experiences in an optimistic fashion and to understand the importance of taking self-responsibility could be a cost-effective way to counter-balance rising health care costs associated with an aging society and with increasing prevalence rates of avoidable illnesses (such as obesity, diabetes and cardiovascular disease). This would require interventions at the person or community level, with the possibility that such interventions begin during infancy and teenage years. ABOUT THE AUTHORSStefanie Schurer is a Senior Lecturer in the School of Economics at The University of Sydney. Her main research interest is the Economics of Human Development. Most of her current research projects explore the evolution of skills, preferences, and health over the life course and the role that parents and the public sector play in determining these skills. AbstractMany studies have demonstrated a causal effect of ill health on labor-supply. In this study, Iexplore the personality-related heterogeneity -measured by differences in control beliefs -in the labor-supply response to health shocks. To identify such behavioral differences, I follow the labor-supply trajectories of 649 initially full-time employed and healthy men who experience at some point in time an episode of ill health. When compared with men who have positive control beliefs, men with negative control beliefs are on average 100% more likely to drop out of the labor force -a drop out unrelated to early retirement -and work on average 12% less hours per week the year after the health shock. These behavioral differences remain robust to alternative estimation samples and health-shock definitions. They are strongest for men from low socioeconomic backgrounds, who do not have access to private health insurance, or who experience high intensity shocks. Heterogeneous labor-supply responses are also observed for conscientiousness and risk tolerance, traits that have been linked with willingness to invest and treatment compliance. An important conclusion from the findings is that a small set of non-cognitive skills produ...

Locus of control and the labor market

“…Entrepreneurs -though not employees -with an internal locus of control enjoy higher wage returns to education than do their more external counterparts (Van Praag et al 2009). Finally, full-time workers experiencing a health shock are more likely to remain in the labor force and work full-time if they have an internal locus of control (Schurer 2014).…”

Can having internal locus of control insure against negative shocks? Psychological evidence from panel data

“…Another interesting and important property of internal locus of control is grit or perseverance in the face of adversity. For example, evidence is emerging that people who have internal locus of control tend to continue employment following a health shock (Schurer, 2014) and search for a job more intensively when unemployed (Caliendo et al, 2015; McGee, 2015). …”

Racial Earnings Disparities with Endogenous Labor Market Participation

“…Also the outcome of different policies: for example, the impact of minimum wage polices (Anh et al, 2011) and pension policies (Andersen and Bhattacharya 2013) have been conditioned on endogenous labor supply. Finally, labor supply itself has been the variable of interest and the effect of fertility (Fang et al 2013), child's health (Burton et al 2017), child's disability (Zhu 2016), informal caregiving (Wang and Zhang 2017), health (Trevisan and Zantomio 2016;Goryakin and Suhrcke 2017;Schurer 2017), and health policy (Kaestner et al 2017;Dague et al 2017) on labor market participation has been examined.…”