The Role of Dynamics in the Health-Education Gradient

Fabian Lange, Yale University
Douglas McKee, Yale University

It is well known that among elderly Americans, education and health are negatively correlated. We contribute to this literature both methodologically and empirically. First, we show how to use factor analytic methods to summarize several measures of health found in the Health and Retirement Study (HRS) in a low dimensional vector representing latent health status. Second, we develop a simulation-based estimator of the dynamic process of health. The dynamic model allows us to explore how endogenous mortality, severe health crises (such as heart attacks or cancers), and more gradual processes affect aging. Third, we estimate both models separately for low and high education groups in the HRS. The results reveal how much inequality in old age is driven by differences in health at age 50 (the beginning of our sample) and how much stems from differences in the aging process.