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The European Journal of Health Economics

Published in:

01-04-2019 | Original Paper

Harsh times: do stressors lead to labor market losses?

Authors: Terhi Maczulskij, Petri Böckerman

Published in: The European Journal of Health Economics | Issue 3/2019

Abstract

This paper examines the links between stressful life events and labor market outcomes. We use twin data for Finnish men and women combined with register-based individual information on earnings, employment and social income transfers. The twin data allow us to account for shared environmental and genetic confounders. We measure the exposure to stressful life events in 1990. The labor market outcomes are measured during a 20-year follow-up over the period 1990–2009. Three findings stand out. First, stressors lead to worse labor market outcomes. Second, both men and women are distressed by labor market shocks, but they respond differently to marital problems and health shocks within the family. For example, women respond to marital problems by working more, whereas men respond similarly after facing a random health shock within the family. Third, the relationship between health shocks and labor market outcomes diminishes as time passes, whereas the consequences of labor market shocks are more permanent.

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Persson and Rossin-Slater [11] find that the death of a relative during pregnancy has negative consequences on birth outcomes and mental health during childhood. Carlson [12] reports that layoffs occurring during pregnancy are associated with a decrease in birth weight. The adverse effects lead to spillover effects. For example, an involuntary job loss of a husband decreases significantly the mental well-being of his wife [13].

Previous studies utilizing twin data have mainly focused on the effects of birth weight on labor market outcomes [25, 26] and the impact of children on female labor supply and earnings [27].

Earlier studies used twin data from the 1981 survey, which contained 17 stressful life events instead of 16. The additional event in the 1981 survey was “Marked increase in work load”, which was regarded as either a positive or a negative event by the experts [39].

The data also include the self-reported categorical income level measured in 1975, as well as employment status. Importantly, the twins were on a parallel path already in 1975, before the negative events occurred. These parallel paths were examined by testing the differences in the mean levels of income and employment in 1975 based on experiencing different types of stressful life events.

Individuals may report differently less severe events (e.g. an illness in the family, if the mother has a bad case of flu, or difficulties with a spouse or colleagues), depending on how traumatic they feel the events are. A more resilient person might not report such an event in the SLE, whereas a more sensitive person might.

Accordingly, twins may report differently negative events in the family, such as the mother’s/father’s illness, depending how traumatic they feel the events are. The data have information on family closeness, i.e., whether the individual has reported being close with his/her father and mother, on a five-point scale. We examined whether twins reported different events regarding the death of a close family member and sickness in the family, depending on how close they were with their parents. These results suggested that family closeness was not associated with the way twins reported experiencing these extreme events.

Labor market shocks and family shocks could be triggered by e.g. health-related behaviors thus inducing endogeneity in the estimated model. To address this possibility, we estimated our main regressions by including smoking status and alcohol consumption in 1975 and 1981 to the models. The baseline findings remained intact with respect to our main findings.

The sample is not sufficiently large to examine the effects of adverse life events for each year separately (or by adding interaction terms between the year dummies and SLEs in the model). However, the year-specific coefficients were of the same magnitude as the ones reported in Table 4, although not always statistically significant due to the smaller sample size.

The results are not reported but are available from the authors.

We do not include the measures of risky health behaviors as controls in the baseline models because alcohol consumption and smoking were measured in 1990 based on recall (with some measurement error) and the behaviors are also likely to change over the 20-year time period used to measure the labor market outcomes. Additionally, the changes in health behaviors between 1990 and 2009 could be endogenously related to unobserved SLEs during this time period.

A study by Böckerman and Maczulskij [63] examines the effect of exogenous health shocks on long-term labor market prospects.

The DF-model is based on four key assumptions: (1) genes and the environment have additive effects; (2) the additive environmental influence is similar for DZ and MZ twins; (3) there is no assortative mating; and (4) there is no correlation or interaction between the shared environment and genetic factors (e.g., [68]). A discussion of the DF-model and criticisms of it are presented in Maczulskij [35] and Conley and Fletcher [69, pp. 20–29].

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Title: Harsh times: do stressors lead to labor market losses?
Authors: Terhi Maczulskij
Petri Böckerman
Publication date: 01-04-2019
Publisher: Springer Berlin Heidelberg
Published in: The European Journal of Health Economics / Issue 3/2019
Print ISSN: 1618-7598
Electronic ISSN: 1618-7601
DOI: https://doi.org/10.1007/s10198-018-1002-2

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Harsh times: do stressors lead to labor market losses?

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