On the Role of Health in Climbing the Income Ladder: Evidence from China

This paper uses two large panel data sets in China to study the effects of a health shock on household income mobility from 1991-2016. We compare outcomes of households with a member who receives a health shock with households that do not receive any health shocks. To do so, we match on demographic and worker characteristics of household members. At the aggregated level, a health shock lowers the probability of "getting out of the low-income trap" by 8.4 percentage points. At the household level, a health shock lowers household income per capita by 12.8%, and income position by 3.2 percentiles. Households that receive a health shock do not adjust labor supply at the intensive margin, but all household members' hourly wages decrease substantially. Households who become poor due to a health shock continue to exhibit lower income mobility in the following years.