The Returns to Health for Peruvian Urban Adults: Differentials Across Genders, the Life Cycle and the Wage Distribution

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Abstract
This report shows evidence on determinants of health status for urban adults and their effects on productivity. Accurate estimation of the effect of health on wages is always difficult to obtain due to endogeneity and measurement error of the health indicators that are available in household surveys for developing countries. The health measure used here is the number of days ill, which involves endogeneity and reporting error problems that are controlled for. The use of household sanitary infrastructure and proxies for health prices, measured by the distance to the health center and the average waiting time for attention at the district level, enabled the construction of an instrument variable estimator for the effects of health on wages. The instruments are statistically significant for all urban individuals. Schooling effects on health are positive and strong for urban males, and the positive effect of schooling on health is clearly increasing with age. The effect of health on wages is positive and robust, especially for urban males. The larger effects of an additional day sick are found among older self-employed males (-4. 3%) and those at the bottom of the hourly earnings distribution (-3. 8%), and those in the private sector (-1. 8%). These results suggest that health has a stronger impact on the wages of those jobs where productivity and health are closely connected, as in the private sector and the self-employed. The inconclusive results among females indicate the need to work on the development of a model that better expresses the way in which women fit into the labor market.