2. Health as Human Capital
Conventional approaches to modeling the relationship between health and labor
market outcomes analogize health to other forms of human capital. Assuming that an
individual’s wage rate is related to his or her marginal productivity of labor, wages
depend on the individual’s level of work effort and their level of skills. Skill levels are
determined by level of innate ability as well as levels of investment in human capital,
which depend on the individual’s marginal rate of return on investment and marginal cost
of financing. In this light, increases in human capital only increase earnings, thus it would
be a simple task to use existing models such as those put forth by Becker (1967) and Ben-
Porath (1967) for an individual’s optimal level of education. Since poor health is likely
to be detrimental to work performance and productivity, wages will be positively
correlated with health status, or people in poor health will be less likely to be employed
under established wages. Furthermore, since economic factors such as wages (the