Essays on the Relationship between Income and Health Open Access

Lenhart, Otto (2016)

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This dissertation examines health effects of policy changes which alter individuals' income security. Besides investigating potential health effects of different types of policies, I am furthermore examining different policy settings since all three chapters cover look at a different country. The first two chapters examine the causal nature of the well-established positive association between income and health, also known as the income gradient in health. I approach this question by exploiting an expansion of the Earned Income Tax Credit (EITC) in the US as well as the implementation of a National Minimum Wage (NMW) in the UK as exogenous variations of income. Both chapters provide evidence for significant health benefits of additional income for low-earning individuals, suggesting that a causal link between income and health exists. Furthermore, both studies provide evidence for potential mechanisms by showing that factors such as health insurance, food and leisure expenditures, health-related behavior and financial stress can explain the positive link between income and health. The third chapter contributes to earlier literature on the relationship between economic conditions and health outcomes. The study investigates health effects of the German Reunification of 1990, which confronted individuals with a large economic shock. I find that these negative economic events led to significant health declines, with the effects being stronger for unemployed and low-income individuals as well as for people in East Germany. I find that exercise frequency, economic uncertainty and overall stress are potential channel through which economic shocks can affect the health of individuals.

Table of Contents

Preface 1

1 Chapter One: The Effect of EITC Expansion on Health: A Different Approach to the Income Gradient in Health 3

1.1 Introduction 4

1.2 Previous Literature 6

1.3 Background 7

1.3.1 The Earned Income Tax Credit 7

1.3.2 Other Welfare Reforms during the 1990s 9

1.4 Data 10

1.4.1 Panel Data of Income Dynamics (PSID) 10

1.4.2 Current Population Survey (CPS) 12

1.4.3 Descriptive Statistics 13

1.5 Econometric Models 15

1.5.1 Main Models 15

1.5.2 Potential Changes in Sample Composition 17

1.5.3 Additional Specifications 18

1.6 Results 20

1.6.1 DD Estimation 20

1.6.2 DDD Estimation 22

1.6.3 Alternative Models 22

1.7 Mechanisms 24

1.7.1 Health Insurance 24

1.7.2 Food Expenditures 26

1.8 Robustness Checks 27

1.9 Discussion and Conclusion 30

1.10 References 31

2 Chapter Two: Do Higher Minimum Wages Benefit Health? Evidence from the UK 46

2.1 Introduction 47

2.2 Previous Literature 49

2.3 Background on Minimum Wages in the UK 52

2.4 Data 54

2.5 Econometric Methods 56

2.5.1 Main Model 56

2.5.2 Descriptive Statistics 58

2.5.3 Alternative Specification 60

2.5.4 Potential Mechanisms 60

2.6 Results 61

2.6.1 Effects of the Policy on Labor Market Outcomes 61

2.6.2 Effects of the Policy on Health 62

2.6.3 Alternative Specification 64

2.7 Mechanisms 65

2.8 Robustness Checks 66

2.9 Discussion and Conclusion 67

2.10 References 69

3 Chapter Three: The Role of Economic Shocks on Health: Evidence from German Reunification 86

3.1 Introduction 87

3.2 Background on the German Reunification 89

3.3 Previous Literature 91

3.4 Data 93

3.4.1 German Socioeconomic Panel (GSOEP) 93

3.4.2 Descriptive Statistics 95

3.4.3 Graphical Evidence 95

3.5 Methods 96

3.6 Results 97

3.7 Mechanisms 99

3.8 Robustness Tests 100

3.8.1 Fixed Effect Ordered Logit Models 100

3.8.2 The Role of Income Inequality 101

3.8.3 Lagged and Lead Unemployment Effects 101

3.9 Conclusions 102

3.10 References 103

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