Early career health shocks and long-run labour market outcomes

The literature on the effects of health shocks on labour market outcomes mainly focuses on short- to medium-term effects of health shocks occurring late in life. Focusing on a younger population, we use a quasi-experimental study design to estimate long-run labour market effects after incident back disorder - one of the most common reasons for sick leave, hospitalisations, and early retirement among early career workers. To reduce bias, we apply event-study models using not-yet treated individuals as controls. Pre-shock income trends indicate that the timing of hospital-diagnosed back disorder is likely exogenous, supporting the identifying assumption. We stratify all results by sex as income and risk of back disorder differ among males and females. Results show that labour productivity, as measured by disposable personal income, decreases faster for males but reaches approximately six percentage points for both males and females after eight years. Long term sick leave, early retirement, and reductions in labour market attachment are non-trivial channels of this reduction, while welfare payments seem to act as a protective factor. Individuals with high physical workload experience much higher income losses, indicating that extra focus on safe work environment and welfare coverage may be needed for this subgroup.