LABOUR MARKET RETURNS TO HEALTH CAPITAL DURING CHILDHOOD: EVIDENCE FROM MEDICAID INTRODUCTION

Abstract

Health capital development during childhood can affect later-life outcomes. This paper examines the long-term effects of the introduction of Medicaid during the 1960s as one of the earliest attempts in US history to provide publicly financed health insurance for the poor. Using a large panel dataset and a difference-in-differences-in-differences identification strategy, I show that exposure to Medicaid during ages 0–5 has sizable and significant effects on economic and non-economic outcomes throughout ages 25–55, including income, employment, education, disability, and wealth. Exposure to Medicaid among fully eligible cohorts is associated with roughly 0.4 percentage higher wage income, equivalent to an increase of $145 above the mean of annual wages. It also implies a minimum of 7.8% externality of the programme in labour market wages.