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Health, wealth, and informality over the life cycle

Julien Albertini (), Xavier Fairise () and Anthony Terriau ()

Journal of Economic Dynamics and Control, 2021, vol. 129, issue C

Abstract: What is the impact of bad health on labor market trajectories, consumption, and wealth accumulation in a developing country characterized by a large informal sector and strong inequalities? We develop and estimate a heterogeneous agents model with two sectors to quantify the impact of health shocks and to disentangle the channels through which they affect wealth and consumption over the life cycle in South Africa. We show that the effects of health shocks are significant and strongly depend on the job status of individuals. For formal workers, bad health reduces labor efficiency, which translates into lower earnings. For informal workers and the non-employed, the shock lowers the job finding rate and increases job separation into non-employment, which results in a surge in non-employment spells. As the non-employed are more likely to be unhealthy, health shocks generate a vicious circle.

Keywords: Health; Wealth; Life cycle; Informality (search for similar items in EconPapers)
JEL-codes: E26 I14 I15 J46 J64 O17 (search for similar items in EconPapers)
Date: 2021
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Working Paper: Health, wealth, and informality over the life cycle (2020) Downloads
Working Paper: Health, wealth, and informality over the life cycle (2020) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:129:y:2021:i:c:s0165188921001056

DOI: 10.1016/j.jedc.2021.104170

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Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

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