This study examines the link between health shocks and labor market outcomes in the United Kingdom. For sample periods of up to 9 years, I use longitudinal data from the British Household Panel Survey to test how sudden health shocks affect a number of labor market outcomes, such as labor and household income, employment status, and hours worked. Additionally, the study examines potential mechanisms underlying the link between health declines and labor market outcomes. By estimating propensity score matching difference-in-differences models, the study shows that sudden health declines lead to significant and persistent reductions in earnings. The effects are strongest for individuals experiencing severe health shocks, males, individuals with higher education and those working in managerial jobs. When examining potential channels, I provide evidence that increased health care expenditures and health care usage as well as reduced work productivity can explain the observed effects on labor market outcomes.
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