The Economic Consequences of an Exogenous Health Shock: An Empirical Study on the Labour Market Outcomes After a Road Accident

McCallum, Sandra
Plum, Alexander
Dasgupta, Kabir
Pacheco, Gail
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Master of Business
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Auckland University of Technology

This thesis examines the impact of an exogenous health shock on labour market outcomes in New Zealand. Assessing the economic impact of a change in health status is challenging due to the endogeneity of health. I take advantage of data available in the Statistics New Zealand’s Integrated Data Infrastructure (IDI). I use Accident Compensation Corporation (ACC) data to identify individuals travelling as passengers in a road accident. Next, I link my population of interest with tax data from Inland Revenue (IR) that contains detailed monthly information on employment, earnings and benefit recipiency. To quantify the impact of the health event on the labour market, I exploit the timing variation of the road accident. I apply a newly developed empirical methodology by Callaway and Sant’Anna (2021) in which individuals receive treatment at different times and where there may be heterogeneity in the treatment effects over time. The results show significant decreases in employment and earnings from wages and salary for up to three years after the accident. These effects are exacerbated for health shocks of greater severity and for individuals of non-European ethnicity. These findings indicate that a health shock can cause longer-term economic scars.

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