Dynamics in health and employment: Evidence from Indonesia

This paper identifies for the first time, the separate causal impacts of both onsets of, and recoveries from, physical disability on both employment status and hours worked. Using panel data from Indonesia we find that more than half of working age adults in our sample experience a physical disability at least once in four waves over 16 years. Changes in physical functioning have no effect on hours worked among the employed. However, onsets of physical limitations lead to an increase in the probability of leaving employment, while recoveries increase the probability of returning to work. A larger effect is found among self-employed workers compared to salaried workers. Given the rising prevalence of physical limitations with age, physical disability may be a significant barrier to employment for older working age adults in Indonesia. These results overall point towards a need in Indonesia for policies that support maintaining work or returning to work for persons with physical disability.