2  Previous studies

Previous research in New Zealand has identified extensive interactions between health and human capital development (Biddulph, F., Biddulph, J. and Biddulph, C., 2003). However, most work has focused on the impact of poor health on the human capital development of young people, rather than the impact of poor health in later life. One health related measure is the presence of a disability. A recent paper using the New Zealand Disability Survey found that all of the six disabilities considered had a negative impact on employment.[2] In addition, for all disabilities other than hearing, increased severity of the disability was found to reduce the rate of employment (Jensen et al, 2005). This work also found that the impact of disability on full-time employment was much larger than for total employment (full-time and part-time).

Another health-related measure is injury. A paper using Statistics New Zealand's Linked Employer-Employee Database (LEED) estimated the effects of injuries on employment (Crichton, Stillman and Hyslop, 2007). Crichton et al found that injuries resulting in more than three months of earnings compensation have negative effects on future labour market outcomes; with the magnitude of these effects increasing with injury duration. While disability and injury are possible indicators of health, more direct measures, such as the presence of chronic disease, are better measures of poor health. No New Zealand studies examining the impact of chronic diseases on labour market participation were found.

Interest in the relationship between health and labour market participation is not confined to New Zealand. Literature reviews (Currie and Madrian, 1999; Chirikos, 1993, in Currie and Madrian, 1999) have identified considerable evidence linking health and labour market activity, but wide disagreement on the magnitude of the effect. Numerous papers using US data suggest a strong link between health and labour market participation. In 1989, Stern found that health problems limiting the amount of work that can be done and poor self-rated health reduced the probability of labour market participation. While looking at the relationship between health and retirement in the later part of working life, (Bound, Schoenbaum, Stienbrickner and Waidmann, 1999) found that poorer health lead many older workers to withdraw from the labour force.

Evidence from the US on the relationship between labour force participation and health is not directly applicable to New Zealand. For instance, those with poorer health in the US may be motivated to participate in the labour force as health insurance is often tied to employment (Cai and Kalb, 2006). As such, a better comparator may be Australia or the UK. A few recent papers using the Australian equivalent of SoFIE (the Household, Income and Labour Dynamics in Australia (HILDA)) have examined the relationship between health and participation. Using data from HILDA, Cai and Kalb (2006) examined the effect of self-rated health on labour force participation for men and women of working age. They found that health was positively associated with participation for four groups (younger males, younger females, older males and older females) even after controlling for the fact that labour force participation may in turn affect health. Further work by Cai (2007) confirmed these findings.

Work by the Australian Productivity Commission examined the impact of chronic diseases on labour market participation (Laplagne, Glover and Shomos, 2007). The chronic diseases considered were cancer, cardiovascular disease, mental/nervous condition, major injury, diabetes and arthritis. They found that absence of chronic diseases can result in substantially greater labour force participation for those affected again even after using different methods to allow for unobserved variables that may affect labour force participation and to allow for the fact that participating in the labour market may in turn affect health. Of the six health conditions considered, mental health or a nervous condition had the largest impact on labour market participation.

Turning to evidence from Britain, work by the Institute of Fiscal Studies, using the British Household Panel survey, examined the role of ill health in retirement decisions (Disney, Emmerson and Wakefield, 2003). They found that deterioration in an individual's self-reported health was strongly associated with movements out of work.