Social Development and Public Governance > Social Development > Health and HIV/AIDS
The Distributional Effects of Illness When Recuperation is Endogenous
This paper explores the possible interactions of income and illness through labor supply choices, and the implications for health and health-cost measurements. Standard utility maximization theory is used to analyze labor supply behavior under constraints imposed by sickness and minimum consumption requirements. For a rather general utility function, an empirically supported elasticity of substitution between leisure and consumption, and under the assumption that no sick pay is received, we find that only higher-wage individuals will choose to recuperate fully, whereas others will work while being sick as long as this yields additional efficient labor hours. Therefore, the income and welfare losses due to a given illness may be larger for low-wage individuals than for those with higher wages. This paper shows that the traditional models and measurements of illness can lead to distorted estimates of illness by neglecting the interaction between income and health.
Last updated: 06/01/07
