Health status and labor force participation: evidence for urban low and middle income individuals in Colombia

Abstract

This paper analyzes the relationship between individual health status and labor force participation using the first wave of the Colombian Longitudinal Survey. The empirical modeling strategy accounts for the presence of potential endogeneity between these two variables. The results show that there is a positive relationship between health and labor force participation in both directions, indicating that better health is likely to lead to a higher probability of participation in the labor market, but also that individuals who participate in the labor market are more likely to report better health. Interesting differences are uncovered when comparing the results by gender and/or age groups. For instance, for younger females, health status and higher education positively affect the probability of labor participation, whereas having children under the age of 5 and being married reduce their probability of participation. Our findings also highlight the importance of public policy to guarantee good health conditions of the population which could also have a positive impact on labor productivity and consequently on long-run economic growth.

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Fig. 1

Notes

  1. 1.

    We follow closely Cai and Kalb’s (2006) notation.

  2. 2.

    Strata one to four include low and middle income households. The survey excludes strata five and six, which correspond to the highest socioeconomic strata.

  3. 3.

    It is important to mention that, for statistical purposes, the Colombian National Department of Statistics (DANE for its Spanish acronym) considers that the working age population corresponds to those individuals aged 12 years and over in urban areas. Also, in our sample, there are only two individuals younger than 15 years old, which is the age commonly used as the minimum age threshold for international comparisons. In addition, less than 1 % of the individuals in our sample are under 20 years old.

  4. 4.

    The choice of age groups was made taking into account that labor participation increases with age up to around 40 years when it starts to decline. The evidence presented in this paper supports this choice.

  5. 5.

    In this paper we use the definition of occupation provided by the Colombian Statistical Department (DANE), according to which occupied people are those worked at least one paid (in kind of in cash) hour in the reference week, those who did not work during the reference week but had a job, and unpaid family workers who worked in the reference week at least 1 hour.

  6. 6.

    It is important to point out that self-assessed health could be used to rationalize labor force participation. Cai and Kalb (2006) state that rationalization could make the health variable endogenous and its effect could be overestimated.

  7. 7.

    An alternative estimation method could be three-stage least squares which estimate the equations simultaneously and allows complete simultaneity. The results are similar to those obtained with IV-2SLS. Given that the estimators are inconsistent when errors are heteroskedastic, as in this case, we decided against this estimation method. In addition, another method could be the bivariate probit. However, this method does not allow us to consider neither full simultaneity nor the four categories in the health status variable. Nevertheless, we estimated bivariate probit models assuming two categories of health (good and poor). The results of these alternative estimations are not reported here but are available upon request.

  8. 8.

    In Colombia the health social system consists of three main regimes, each with different health services: Contributory, non‐contributory (subsidized), and special (e.g., armed forces and national police). The contributory regime operates as an insurance system that offers a basic health plan. It covers workers with a work contract, pensioners and freelancers. The non-contributory or subsidized regime covers the poorest and most vulnerable people in the country and is funded with public resources (Melo and Ramos 2010).

  9. 9.

    “Familias en acción” is a government program addressed to families in poverty and vulnerability, which delivers conditional monetary transfers in order to supplement incomes and improve health and education for children under 18.

  10. 10.

    In these estimations, each equation is separately estimated and all exogenous variables are used as instruments (see Wooldridge 2006).

  11. 11.

    Appendix B presents the tests for the joint significance of the instruments as well as the tests for endogeneity.

  12. 12.

    We also consider other measures of labor market activity. For example, we excluded from our original definition, unpaid family workers. Then we excluded those who work less than 24 hours (this is half the working hours a person can legally work per week in Colombia). The results are qualitatively the same as those of our main specification. To save space, results are not presented here, but are available upon request.

  13. 13.

    The threshold parameters estimated in all the models are statistically different from one another; therefore, we maintained the four categories for the dependent variables in all the models. A Wald test was used to test the difference among the threshold parameters. The results of the tests, as well as the marginal effects for all models, may be obtained from the authors upon request.

  14. 14.

    For Australia, Cai and Kalb (2006) find a positive relationship between being in the labor force and self-assessed health for older women, indicating different working conditions between the two countries.

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Acknowledgments

We would like to thank an anonymous referee for helpful comments and suggestions. We also want to thank Ximena Cadena, Director of the ELCA Project, for the information about the survey. We are also grateful to Luis Eduardo Arango, Jesús Otero, Rainer Winkelmann, and Héctor Zárate for their comments and suggestions. We also wish to thank Carmen Cecilia Delgado, Helena González, and Sonia Salazar for their excellent research assistance. The opinions expressed herein are those of the authors and do not necessarily reflect the views of Banco de la República or its Board of Directors.

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Correspondence to Ana María Iregui-Bohórquez.

Appendices

Appendix A Variables used in the model

Table 9 Description of variables
Table 10 Summary of descriptive statistics

Appendix B

Table 11 Tests for the joint significance of instruments and endogeneity1/

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Iregui-Bohórquez, A.M., Melo-Becerra, L.A. & Ramírez-Giraldo, M.T. Health status and labor force participation: evidence for urban low and middle income individuals in Colombia. Port Econ J 15, 33–55 (2016). https://doi.org/10.1007/s10258-016-0116-7

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Keywords

  • Health status
  • Labor force participation
  • Endogeneity
  • Two-stage least squares
  • Ordered probit

JEL Classification

  • C35
  • C36
  • I10
  • J21