Disentangling the effects of morbidity and life expectancy on labor market outcomes

Using a unique longitudinal dataset tracking the experiences of patients diagnosed with HIV + disease, this paper develops and estimates a model capable of recovering the effect of revisions in life expectancy on labor market outcomes. The data allow us to estimate the effect of changes in health status (as objectively measured by CD4 counts) and the impact of learning that one is HIV +, which we interpret as a negative shock to life expectancy. Both parametric and distribution-free models robustly indicate that decreases in health have little effect on labor demand but decrease probability of employment. We conclude that, in this sample, negative association between income and health is attributable mostly to the effect of altered incentives induced by changes in life expectancy. Copyright (C) 2002 John Wiley Sons, Ltd.