The Impact of Aggregate and Idiosyncratic Income Shocks on Health Outcomes: Evidence from the PSID

In this paper, we investigate the impact of aggregate and idiosyncratic economic shocks on health using data on self-reported health status and mortality from the Panel Study of Income Dynamics. First, we document a large correlation between poor macroeconomic conditions and mortality for working-aged men. This correlation is robust to controls for baseline health which mitigates concerns that the correlation is the result of selection. There is no relationship between macroeconomic conditions and mortality for women. Next, to better understand how much of this correlation is the result of a causal impact of income shocks on health, we use methods from the literature on dynamic panel data models. Doing this, we find evidence of a causal impact of income shocks on health for working-aged men at the lowest parts of the income distribution. Finally, our analysis provides no evidence that recessions are good for your health. JEL Classification: I0, I12, J1