Earnings and the Elusive Dividends of Health

The views and interpretations in this document are those of the authors and should not be attributed to the Inter-American Development Bank, or to any individual acting on its behalf. The Research Department (RES) publishes the Latin American Economic Policies Newsletter, as well as working papers and books, on diverse economic issues. To obtain a complete list of RES publications and read or download them, please visit our web site at: Abstract This paper looks at the relationship between health and income. After discussing the general context of health improvements in Latin America during the last few decades, the study elaborates on the interrelationships between the physical and social determinants of health, the complexities that arise in attributing earnings differentials to variations in health status, and the difficulties of accurately measuring health status. The paper presents a methodology for estimating the impact of health on earnings that addresses problems of measurement error and endogeneity, then summarizes the main findings of related studies undertaken as part of a larger project. These studies show that health status does have a significant, although modest, impact on earnings in four Latin American countries. Furthermore, environmental conditions (such as housing and sanitation) appear to have significant impacts on health status, compared to health services and public health facilities, which show little influence. The universally strong relationship between education and earnings is only modestly reduced by the inclusion of health status despite a general expectation that estimated returns to education were, in part, capturing the frequently unmeasured effects of health. By analyzing these relationships together–health determinants and the impact of health on earnings–we can assess the magnitude and importance of the " human capital " component of health status, validate and compare a range of health indicators, and identify promising areas for public policy to invest in health improvements 4 5