ABSTRACT
This chapter looks at the extent to which the current empirical evidence on the effects of health on labour outcomes supports a human capital rationale for health policy. The author extends the review by Currie and Madrian to include more recent work, and focus particularly on the Australian labour market. He begins by outlining the theory that underpins much of the literature and the interpretation of the results of the empirical studies. The most popular econometric method involves finding either a more objective measure of health or a proxy for actual health that is neither affected by work effort nor subject to reporting bias in other words, finding a desirable 'instrumental variable' that affects labour market outcomes only through the direct effect of health. Intuition and casual observation suggest that health affects labour market outcomes. The literature shows that there is a positive relationship between health and labour market outcomes, including both labour supply and productivity.
