Health Capital and Human Capital as Explanations for Health-Related Wage Disparities

We use a dynamic modeling strategy to evaluate two potential avenues through which health differences generate a wage gap: (1) directly, through reductions in health capital, and (2) indirectly, through employment transitions that reduce human capital (specifically, occupation and employer tenure). Our results suggest that male workers with a moderate disability are 23 percent more likely to change occupations or employers than nondisabled men. Compared to those who do not make a transition, workers with a moderate disability who change occupations and employers experience an immediate $0.30 decline in hourly wages on top of a $0.57 decline associated with the disability onset.