Income and employment effects of health shocks - A test case for the German welfare state

Using data from the first eleven waves of the German Socio-Economic Panel t his study investigates the dynamic effects of health shocks on employment a nd economic well-being of older workers. A health shock trebles the probabi lity of leaving the labor force and almost doubles the unemployment risk. T he financial effects of health shocks are small on average and those indivi duals with the highest remaining earnings potential are least affected by t he health shock. Welfare state instruments support the poorest section of t he population but do not succeed in neutralizing the effects of a health sh ock for these groups. JEL classification: I10, J21, J28, J26.