The impact of health on wages: evidence from Europe before and during the Great Recession

Abstract

Economic theoretical models suggest that health, as a component of human capital, affects wages through productivity. However, during economic downturns, circumstances like increased presenteeism and scarcer promotion opportunities can blur this relationship. We use a variety of estimators on European individual-level panel data from before and during the Great Recession (GR) to investigate if the health–wage relationship varies with economic conditions. Our results show that, in the period prior to the GR, working-age men and women who are in relatively better health (as measured by a one-unit increase in a health index) have, correspondingly, a 6% and 5% higher hourly wage rate, on average. Instead, during the GR, the positive impact of health on wages disappears. This finding, we argue, could be due to an increase in presenteeism during the GR, which reduced the impact of poor health on wages in the short run.