Chronic diseases and labour force participation in Australia

Abstract

We examine the impact of several chronic diseases on the probability of labour force participation using data from the Australian National Health Surveys. An endogenous multivariate probit model is used to account for the potential endogeneity of the incidence of chronic conditions such as diabetes, cardiovascular diseases and mental illnesses. The cross-equation correlations are significant, rejecting the exogeneity of the chronic illnesses. Marginal effects of exogenous socio-demographic and lifestyle variables are estimated through their direct effects on labour market participation and indirect effects via the chronic diseases. The treatment effects of chronic diseases on labour force participation are estimated via conditional probabilities using five-dimensional normal distributions. The estimated effects differ by gender and age groups. Although computationally more demanding, these treatment effects are compared with results from a univariate model treating the chronic conditions exogenous and the structural effects from the multivariate probit model; both significantly overestimate the effects.